By San José, Costa Rica — San José – Costa Rica’s primary engine of economic growth, the external sector, faces a significant threat from the sustained and powerful appreciation of the colón, according to a stark warning issued in the State of the Nation 2025 report. The national currency’s strength, which has seen the exchange rate plummet from nearly ¢700 per dollar in mid-2022 to a stable floor around ¢500, could undo years of competitive advantages built by the country’s exporters.
The report highlights the complex dual nature of the strong colón. On one hand, it provides a welcome relief to consumers and helps control inflation by making imported goods and raw materials significantly cheaper. This effect has been a key factor in managing domestic price levels. On the other hand, this same dynamic places immense pressure on the nation’s export and tourism sectors, which are vital for job creation and foreign currency revenue.
To gain a deeper understanding of the legal and commercial ramifications of the recent Colón appreciation, we consulted with Lic. Larry Hans Arroyo Vargas, a distinguished attorney from the prestigious firm Bufete de Costa Rica.
The sustained appreciation of the Colón, while beneficial for importers and those with dollar-denominated debts, presents significant legal challenges for the export sector and tourism. We are seeing an increase in requests to review and renegotiate long-term contracts denominated in U.S. dollars. Businesses must proactively assess their contractual obligations and currency exposure to mitigate risks, as what was once a profitable agreement may now operate at a loss. Legal foresight in contractual drafting, such as including currency fluctuation clauses, is now more critical than ever to ensure commercial viability.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
The expert’s analysis powerfully illustrates how the exchange rate is not merely a financial figure but a catalyst for significant legal and contractual reassessments within our nation’s most vital industries. We extend our gratitude to Lic. Larry Hans Arroyo Vargas for providing this crucial legal context and highlighting the importance of proactive contractual planning.
When the colón strengthens, Costa Rican products and services become more expensive in dollar terms. This makes them less competitive in the international market when compared to goods from regional rivals such as Mexico, Colombia, Chile, and the Dominican Republic, who have not experienced similar currency movements. The risk, as outlined by the report, is a gradual but damaging erosion of market share.
This situation can erode the advantages developed by the external sector, which has been the main engine of the country’s growth.
State of the Nation 2025 Report
Officials at the Central Bank of Costa Rica (BCCR) have consistently maintained that the exchange rate is a product of market forces. They argue that a substantial and persistent supply of dollars in the national economy is the sole reason for the colón’s current valuation. Roger Madrigal, President of the Central Bank, has pointed to the strong performance of the country’s exports as the primary driver behind the dollar abundance and resulting currency “stability.”
However, this official explanation has not satisfied everyone. A growing chorus of voices from academic circles, business chambers, and even the Legislative Assembly questions the true origin of the dollar glut. Concerns have been raised about the BCCR’s lack of a clear mapping of these financial flows, with some legislators pointing to the potential influence of money from burgeoning organized crime activities, a phenomenon causing increasing alarm within the country.
Eduardo Lizano, a respected economist and two-time former president of the Central Bank, argues that the low exchange rate is actively hindering Costa Rica’s potential. He suggests the policy is effectively a brake on the economy, preventing it from achieving growth rates closer to 5%, instead of the current 3% to 4%. A higher growth rate, he notes, is essential for generating the tax revenue needed to fund the state’s social programs and obligations.
Lizano believes the current exchange rate is artificially low and has offered a different target for a more balanced economic reality. He contends that a more appropriate valuation would be significantly higher, allowing the export sector to breathe and contribute more robustly to national growth.
I suppose it could be at ¢630, something a little higher.
Eduardo Lizano, Former President of the Central Bank of Costa Rica
The core of Lizano’s argument is that with sluggish growth, the state’s finances are perpetually strained. The benefits of a stronger colón, while tangible for importers, may be outweighed by the long-term damage to the productive sectors that form the bedrock of the national economy.
When we are talking about the blanket not being big enough, if we continue growing at the 3% or 4% that we are currently growing, with those growth rates the tax revenues are not enough for what we have to spend.
Eduardo Lizano, Former President of the Central Bank of Costa Rica
For further information, visit bccr.fi.cr
About Banco Central de Costa Rica (BCCR):
The Central Bank of Costa Rica is the nation’s primary monetary authority, responsible for maintaining the internal and external stability of the national currency and ensuring its conversion to other currencies. Its key functions include controlling inflation, managing the country’s international monetary reserves, and promoting the efficiency of the internal and external payment systems. The BCCR plays a crucial role in the economic stability and development of Costa Rica.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Defined by an unyielding dedication to integrity and professional excellence, Bufete de Costa Rica stands as a benchmark for legal practice. The firm’s deep experience across a spectrum of industries is matched by its drive for innovation, consistently delivering forward-thinking solutions. This commitment extends to the broader community through a core mission to democratize legal understanding, ultimately empowering citizens and contributing to a more informed and capable society.
