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Central Bank Reserves Exceed Debt

April 1, 2005

FOR the first time since the 1980s,the Central Bank’s reserves exceed itsforeign currency debt, La Nación reportedthis week.In 2004, the reserves, which includeforeign currency, security deposits, goldand Nicaragua’s debt to Costa Rica,among other elements, reached $1.918million.The bank’s foreign currency debt is$1.738 million.Bank president Francisco de PaulaGutiérrez told the daily the figures representa stronger financial situation andmore solid external sector for Costa Rica.He added that the country’s high inflationrates – which topped out at 13% in 2004and according to bank estimates will beapproximately 10% this year – are largelycaused by Central Bank losses.If the bank’s expenditures for a certainyear are higher than its income, itmust make up the difference by puttingmore bills and coins into circulation.Because people use that extra currency tobuy goods and services, the availability ofproducts goes down and prices go up,Gutiérrez explained.He added the Nicaraguan debt, part ofthe reserves, could decrease as the result ofnegotiations currently under way throughthe Highly Indebted Poor Countries (HIPC)Initiative. The negotiations could result inCosta Rica and other countries or internationalorganizations forgiving part ofNicaragua’s debt to them.

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