Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

COSTA RICA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of January 31, 2007)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: February 1, 1965.
Exchange Measures
Restrictions and/or multiple currency practicesNo restrictions as reported in the latest staff report as of December 31, 2006.
International security restrictionsNo.
References to legal instruments and hyperlinksn.a.
Exchange Arrangement
CurrencyThe currency of Costa Rica is the Costa Rican colón.
Exchange rate structureUnitary.
Classification
Crawling bandThe external value of the colón is determined in the interbank market. Effective November 20, 2006, foreign exchange trading among authorized traders occurs in the organized electronic foreign exchange market, MONEX (previously, foreign exchange operations were carried out on the MONED), where the Banco Central de Costa Rica (BCCR) carries out its intervention operations. A limited amount of foreign exchange trading also takes place directly between authorized institutions outside the MONEX.
Foreign currency buying and selling transactions of the nonbank public sector are carried out directly with the BCCR or through the state commercial banks, depending on the amount of the operation, at exchange rates set by the BCCR for that purpose. The exchange rates applied represent the weighted average daily rate resulting from BCCR transactions on the foreign exchange market to meet the net requirements of the institutions involved, even though the BCCR may, in special circumstances, supply them from its international monetary reserves at the average wholesale market price. Public institutions wishing to hold foreign currency are required to obtain authorization from the BCCR with regard to amounts and annual limits.
In addition, institutions authorized to operate on the foreign exchange market are free to set buying and selling rates for transactions with the public. Those rates must be the rates actually used in transactions, i.e., including any surcharge or additional cost, so that they reflect the final price negotiated by the customer. Previously, in the crawling peg regime, effective January 2006, the rate of crawl of the colón was set on the basis of expected rather than past inflation of Costa Rica’s 19 principal trading partners. Effective March 16, 2006, the BCCR changed its policy interest rate from the 30-day deposit rate to the overnight deposit rate. Effective April 21, 2006, a bid-ask spread of C 0.75 was imposed on transactions with authorized institutions on the MONED.
On October 17, 2006, the BCCR replaced the crawling peg with a crawling band. The band is defined in terms of colones per $1, and had an initial width of 3%. The edges of the band are periodically adjusted. As of October 17, 2006, the floor was set at C 514.78 per $1, and the ceiling was set at C 530.22 per $1.
The floor was adjusted up by C 0.06 and the ceiling by C 0.14 every working day, resulting in an upward crawl of 2.9% and 6.7% a year, respectively. No central parity is defined in the new foreign exchange system. The BCCR reserves the right to change the rate of crawl, if such a need arises owing to financial and macroeconomic conditions. On January 31, 2007, the rate of crawl of the band’s floor was reduced by C 0.06 a day to zero and that of the ceiling by C 0.03 a day to C 0.11, allowing for a faster widening of the band. As a result, 306 the exchange arrangement has been reclassified, effective October 1, 2006, to a crawling band arrangement from a crawling peg.
Exchange taxIn accordance with Article 97 of the Organic Law of the BCCR and Article 5 of the Regulations on Spot Market Exchange Operations, a fee is charged for participation by ADs in the foreign exchange market. Authorized agents must transfer to the CB 10% of the weighted average margin of intermediation on all foreign exchange transactions. Proceeds must be transferred to the CB by the next working day.
Exchange subsidyNo.
Forward exchange marketNo.
References to legal instruments and hyperlinksRegulations on Foreign Exchange Operations (BCCR 5300-2006, Article 5, October 13, 2006); Regulation on Spot Market Exchange Operations; Regulations on Operations with Foreign Exchange Derivatives (approved but not yet in effect); www.bccr.fi.cr/documentos/metas/publicacionesmetas.htm; www.bccr.fi.cr/flat/bccr_flat.htm (Leyes y Reglamentos);www.bccr.fi.cr/documentos/secretaria/archivos/Reglamento%20Operaciones%20Cambiarias%20de%20Contado-BCCR.pdf; BCCR 5314-2007 Article 4, Tipo de Cambio de Intervención de Compra y Venta; www.bccr.fi.cr/flat/bccr_flat.htm.
Arrangements for Payments and Receipts
Prescription of currency requirementsNearly all payments for exchange transactions are made in dollars. Trade payments to Central America may be made in dollars or in local currencies.
Payments arrangements
Regional arrangementsCosta Rica is a member of the CACM.
Administration of controlRegulations are issued by the BCCR, and supervision is the responsibility of the General Superintendency of Financial Institutions (SUGEF) in the case of financial institutions and foreign exchange bureaus, and of the General Superintendency of Securities in the case of securities exchange seats.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)Natural and juridical persons may buy or sell domestically produced gold (except national archaeological treasures).
Controls on exports and imports of banknotesImports and exports of foreign currency are unrestricted. The BCCR participates as a facilitator in the import of banknotes, aggregating and processing needs as requested by authorized foreign exchange intermediaries.
References to legal instruments and hyperlinksn.a.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency held abroadn.a.
Accounts in domestic currency convertible into foreign currencyYes.
References to legal instruments and hyperlinksn.a.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsn.a.
References to legal instruments and hyperlinksn.a.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measuresImports made on a barter basis require a barter license issued by the Ministry of Economy, Industry, and Commerce (MEIC).
Negative listn.a.
Open general licensesn.a.
Licenses with quotasn.a.
Other nontariff measuresn.a.
Import taxes and/or tariffsCustoms tariffs on most goods range up to 15%. In addition, the following taxes are levied on imports: (1) a sales tax of 13%, from which certain essential items are exempt; and (2) selective consumption taxes at rates ranging from zero to 100%.
State import monopolyImports of fuel are made by the Costa Rican Petroleum Refinery and imports of grain by the National Council of Production.
References to legal instruments and hyperlinksn.a.
Exports and Export Proceeds
Repatriation requirementsExporters that have received foreign currency from the export of goods, services, or tourism must sell same to an authorized institution or provide proof to the BCCR that the foreign currency in question has entered the country, for the period and within the reporting time frame established by the BCCR.
Financing requirementsn.a.
Documentation requirementsAn export form must be filed with the Foreign Trade Promotion Agency.
Export licenses
Without quotasLicenses are required for the following goods from their respective agencies: armaments, munitions, scrap iron, and scrap of nonferrous base metals, from the MEIC; sugar, from the Agro-Industrial Cane League; beans, ipecacuanha root, onions, cotton, meat, and thoroughbred cattle, from the National Council of Production; airplanes, from the Civil Aviation Board and the MEIC; Indian art objects made of gold, stone, or clay, from the National Museum; tobacco, from the Tobacco Defense Board; textiles, flowers, lumber, cats, dogs, certain livestock, and wild animals and plants of the forest, from the Ministry of Agriculture and Livestock; bananas, from the National Banana Corporation; rice from Conarroz; and coffee, from the Coffee Institute. In addition, if there is a lien on coffee in favor of a bank, approval from the bank is required before an export license is granted by the BCCR.
Export taxesTaxes are levied on coffee and bananas and, in some cases, are graduated in line with international prices. There are no taxes on nontraditional exports to countries outside Central America.
Collected through the exchange systemn.a.
Other export taxesn.a.
References to legal instruments and hyperlinksRegulation on Spot Exchange Operations: Report on the Sale or Inflow of Foreign Currency (Chapter IV, Article 11); www.bccr.fi.cr/Secretaria/OperacCambiariasm7-BCCR.htm.
Payments for Invisible Transactions and Current Transfers
Controls on these transfers
Investment-related paymentsA 15% withholding tax is levied on all profits, dividends, and remittances of interest abroad, except for remittances to foreign banks or their financial entities recognized by the BCCR as institutions normally engaged in international transactions, and for interest payments on government borrowing abroad.
References to legal instruments and hyperlinksn.a.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsExporters that have received foreign currency from the export of goods, services, or tourism must sell the same to an authorized institution or provide proof to the BCCR that the foreign currency in question has entered the country, for the period and within the reporting time frame established by the BCCR.
Restrictions on use of fundsn.a.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsNo.
Repatriation requirementsNo.
Controls on capital and money market instruments
On capital market securities
Bonds or other debt securities
Sale or issue abroad by residentsThe MOF is authorized by the legislative assembly to issue bonds in international markets.
Controls on derivatives and other instrumentsNo.
Controls on credit operations
Commercial creditsThe National Budget Authority (composed of the minister of finance, the minister of national planning and economic policy, and the president of the BCCR) is in charge of authorizing the negotiation of new external long-term credits contemplated by the central government, decentralized agencies, and state enterprises.
Financial credits
By residents to nonresidentsPrivate commercial banks and finance companies supervised by the General Superintendency of Financial Institutions (GSFI) must inform the BCCR in advance when contracting credit abroad. Cooperatives are required to obtain authorization from the BCCR for contracting credit abroad.
Controls on direct investmentNo.
Controls on liquidation of direct investmentNo.
Controls on real estate transactionsNo.
Controls on personal capital transactionsNo.
References to legal instruments and hyperlinksn.a.
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutions
Borrowing abroadPrivate commercial banks and financial institutions supervised by the GSFI must inform the BCCR in advance when contracting credit abroad. Cooperatives must obtain authorization from the BCCR for contracting credit abroad.
Maintenance of accounts abroadYes.
Lending to nonresidents (financial or commercial credits)Yes.
Lending locally in foreign exchangeYes.
Purchase of locally issued securities denominated in foreign exchangeYes.
Investment regulations
Abroad by banksBanks in Costa Rica are not allowed to invest in capital instruments (e.g., stocks). There are no restrictions on investment in debt instruments, except that they must not exceed 20% of the capital and reserves of a single issuer.
In banks by nonresidentsThere are only general prudential rules to ensure that the financial system is not used for illicit activities.
Open foreign exchange position limitsThe own foreign currency position of each financial institution supervised by the GSFI at the end of each business day must be between ±100% of the institution’s total capital most recently reported by the GSFI to the BCCR. The authorized own foreign currency position of each institution may vary daily as a result of foreign exchange operations, up to +1% or up to–1% of the value of the institution’s total capital expressed in dollars.
Provisions specific to institutional investors
Insurance companiesn.a.
Pension funds
Limits (max.) on securities issued by nonresidentsTwenty-five percent to 50% of managed funds.
Limits (max.) on investment portfolio held abroadn.a.
Limits (min.) on investment portfolio held locallyn.a.
Currency-matching regulations on assets/liabilities compositionOnly yen, dollars, and euros are allowed. Up to 5% is allowed to be held in domestic currency.
Investment firms and collective investment funds
Limits (max.) on securities issued by nonresidentsThere are no specific limits, but the regulations state that investment is allowed in foreign securities on certain conditions. These include the following: (1) the valuation of the securities must be based on daily prices, (2) they must meet the requirements for securities issued in series, (3) they must have been designated as eligible for trading in an organized foreign market, and (4) they must have been given a risk rating by a recognized rating agency.
Limits (max.) on investment portfolio held abroadn.a.
Limits (min.) on investment portfolio held locallyCertain minimum limits are applicable to securities diversification, without any distinction made regarding foreign securities.
Currency-matching regulations on assets/liabilities compositionn.a.
References to legal instruments and hyperlinkswww.bccr.fi.cr/documentos/secretaria/archivos/Reglamento%20Operaciones%20Cambiarias%20de%20Contado-BCCR.pdf; Article 4, Authorized Own Foreign Currency Positions of Financial Institutions Supervised by the SUGEF; Reglamento de Inversiones Entidades Autorizadas-SUPEN m4 ReglaGralSociedAdmFondosInversion- SUGEVAL Articles 51, 52, 53, and 54.
Changes during 2006
Exchange arrangementMarch 16. The BCCR changed its policy interest rate from the 30-day deposit rate to the overnight deposit rate.
April 21. A bid-ask spread of C 0.75 was imposed on transactions with authorized institutions on the MONED.
October 1. The exchange arrangement was reclassified to the category crawling band from the category crawling peg.
October 17. The BCCR changed the exchange rate regime to a crawling band from a crawling peg. The band was defined in terms of colones per $1, and had an initial width of 3%. The floor was set at C 514.78 per $1, and the ceiling was set at C 530.22 per $1.
November 20. Foreign exchange trading occurs in the organized electronic foreign exchange market, MONEX (previously, foreign exchange operations were carried out on the MONED).
Changes during 2007
Exchange arrangementJanuary 31. The floor for the colón’s crawl was changed to C 519.16 per $1 (previously, 514.78) and the ceiling to C 540.55 per $1 (previously, 530.22). No central parity was defined.

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