November 1, 2013
The economies of Central America are all tied to the performance of the US, but Costa Rica has a particularly strong connection — a dynamic that is not always positive. As developed market central banks flirt with ending quantitative easing, Costa Rica is bracing for fallout.
The country has received extensive inflows of speculative capital over recent years. That has driven its currency, the colón, up against the dollar.
Now, banks are steeling themselves for a reversal in the flows.
“Rates in the developed world are going to rise,” says Gerardo Corrales, general manager of BAC San José. “This will cause capital to exit, and a devaluation of our currency. Our strategy has been to keep
Flows of speculative capital to Costa Rica present both risks and opportunities for local banks