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Costa Rica’s Struggle with Currency Appreciation

Costa Rica’s business sector is raising alarms about the nation’s worsening social and economic situation. Álvaro Jenkins, a key figure in the business community, has voiced concerns that the economy may suffer severe disruptions and lose the social harmony it has historically enjoyed. He pointed particularly to the exchange rate issues, which he believes are harming the productive sector.

The national currency has appreciated by 25% since 2022, a change that many companies have struggled to withstand. Jenkins argues that this currency appreciation, influenced by exchange rate policies, is not being effectively managed by the Central Bank, leading to significant business challenges.

As a result, numerous companies have been forced to scale back operations or close down, and for many, restarting operations has proven to be exceedingly difficult.

Jenkins further criticizes the Central Bank’s strategy to maintain a low exchange rate against the US dollar. He suspects that this might be a response to the interests of the Executive Branch, although he clarifies that he has no concrete evidence of the Central Bank losing its independence.

This artificially low exchange rate is particularly concerning because it diminishes Costa Rica’s competitiveness in key sectors like exports and tourism. With the exchange rate skewed, these sectors end up paying more US dollars for the same amount of goods or services, impacting overall economic performance.

Furthermore, Jenkins highlights issues beyond the exchange rate, such as cuts to education and social investments, which he believes are putting additional pressure on Costa Rica’s societal fabric.

He points out that Costa Rica’s declining performance in international educational assessments, such as the PISA tests, indicates that the country is neglecting critical areas. This neglect could lead to a deterioration of social stability in the near future.

He argues that investing in education and social sectors is essential to address other persistent issues in the country, such as poverty and growing inequality.

Despite presenting a favorable image to international organizations, Jenkins feels that the government and Central Bank are more focused on showcasing “pretty numbers” rather than addressing the underlying challenges facing Costa Rica. This approach, he warns, could have long-term detrimental effects on the country’s social and economic landscape.

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