Narayan AmmachchiMost economies in Latin America are shrinking, but not Costa Rica’s. The health of this country’s economy reflects on the strength of its currency. Costa Rica’s currency, the colon, is up 1% against the dollar this year.
Rising value of currency might hurt the country’s export industry. But so long as the economy grows, Costa Rica may have little to worry about, say analysts. The economy of this Central American republic is expected to grow 3.5 percent this year.
The reason the Costa Rican economy is growing is that it relies mostly on services to drive economic growth. Tourism, tech, medical equipment and shipping are the major growth industries in this Central American country.
Costa Rica’s colon is the best performing currency in the Western Hemisphere, says Bloomberg. Last year it was Guatemala’s quetzal, which rose 3 percent last year.
Costa Rica is one of a few Latin American countries that imports oil. Therefore, the declining value for oil seems to have strengthened its currency. As oil prices fell, so did the demand for the dollar in Costa Rica, because oil is the main source of demand for foreign currency in its local exchange market.
Currencies of countries that export commodities have been hit hard. Among the worst hit is the Brazilian real, which has plummeted 30% so far this year.
Declining oil prices have eased pressure on Costa Rica’s central bank, which announced in January it would allow the currency to float against the dollar. The central bank also attributed the rising value in colon to financiers who are repatriating money held overseas.
That means confidence in the Costa Rican economy is growing. Latin America’s economy overall is expected to shrink this year, according to the IMF’s newly published projections last week. Brazil is already in recession and is weighing on much of the region’s growth.
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