Economy sputters to lowest growth since ’02

August 8, 2008

The Costa Rican economy slowed last month to the smallest growth rate in six years, the Central Bank said this week.

The bank´s Monthly Index of Economic Activity showed Costa Rica´s economy in grew just 2.6 percent from June 2007 to June 2008, the smallest growth registered since March 2002.

The Central Bank foresaw economic problems this year and lowered its estimate of economic growth for 2008 from 3.8 to 3.2 percent, according to the daily La Nación.

Agriculture, mining and industry, including the technology powerhouse Intel, were among the sectors of the economy that have fallen in production, the daily said.

Surging oil prices earlier this year and high inflation have also been plaguing the Costa Rican economy, and the colón has fallen sharply against the dollar in recent months.

Last week, the Central Bank spent $62.9 million of its international reserves trying to keep the colón afloat.

Since April, the bank has dumped $902.5 million, or 18.3 percent, of its reserves.

The bank had an all-time high of $4.9 billion in international reserves in April, but those reserves had fallen to $4.03 billion as of Aug. 8.

A dollar fetched about ¢500 on MONEX, the domestic money market, at the beginning of May, but this week it was buying ¢556, just under the upper limit the Central Bank allows.

The Central Bank established a new dollar-colón exchange regimen last year based on upper and lower bands within which the colón can be traded against the dollar.

When the price of a dollar gets close to either limit, the Central Bank buys or sells currency on the local market to alter supply, thus controlling the colón´s price.

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