Devaluation: Opportunity or Threat to the Costa Rican Economy?

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By LatAm Reports Editor

The recent devaluation of the dollar has captured the attention of Costa Rican society, raising questions about its causes, impacts and projections in the short and long term. In this interview, the professor of Economics and Business Administration of Fidélitas University, Malberth Cerdas, offers valuable answers to key questions.

Causes of devaluation

According to Cerdas, the devaluation of the dollar is mainly due to the significant increase in the supply of dollars in the economy. This phenomenon is attributed to the remarkable growth of the export sector, foreign direct investment and tourism. In addition, the government has contracted an external debt of around $3 billion, which has also contributed to the decrease in the exchange rate.

Impacts of devaluation

Cerdas says the devaluation of the dollar has both positive and negative impacts. The most impacted by the devaluation are exporters and those whose wages are called in dollars. However, for the rest of the population, this phenomenon is presented as positive news, as it allows the acquisition of imported goods at more accessible prices and contributes to keeping the country in a state of deflation.

Economic projections

Pigs believes the dollar price is unlikely to rise in the short term, it could even fall further. In the long term, the scenario will depend to a large extent on the monetary and fiscal policies implemented.

Role of monetary and fiscal policies

Cerdas believes that the government’s economic policy, which is divided into fiscal policy and monetary policy, has contributed to the devaluation of the dollar. In the area of fiscal policy, dollar indebtedness has increased the currency’s reserve. With regard to monetary policy, the Central Bank remains at its focus on the inflation target, so it will continue to buy dollars at the pace of economic growth.

Geopolitical implications

Cerdas warns that a fight devaluing the currency could face long-term structural problems. The best thing is that the exchange rate is regulated alone, by supply and demand, with the least possible intervention.

Councils for citizens and businesses

Cerdas recommends that citizens and businesses adapt to the devaluation scenario and changes in economic indicators. He points out that there are sectors that can be “colonized,” such as tourism, putting all prices in colones. As for indebtedness, he advises doing so in the currency in which money is made. To invest, it recommends defining the future purpose of the money and assessing the level of risk tolerance.

The devaluation of the dollar is a complex phenomenon with both positive and negative impacts on the Costa Rican economy. Monetary and fiscal policies, as well as geopolitical implications, play a key role in their evolution. Citizens and businesses must adapt to this scenario and make informed financial decisions to seize opportunities and mitigate risks.

This article has been translated from the original which first appeared in El Mundo