Expat money experts advise getting hard assets

Many expats struggle here with limited financial resources and unexpected expenses.

Yet there are a few independent individuals who have brought their business knowledge and cash from elsewhere and say they have profitable situations here.

None wishes to be named, They fear extortion, kidnapping or worse. They have become critical observers of the financial scene, and a few even talk to reporters to share opinions.

What they say they believe is no secret:

• the colon is way overvalued.

• the national debt and government spending sooner or later will push the country to the wall.

• the commercial real estate market, including apartment and condo projects are in trouble due to low occupancy and low rents.

• Banks are vulnerable because their mortgages are based on eroding property values that are based on project income.

• The financial disaster that is the country of Greece is seen as a poster child of what Costa Rica could become unless the government does the unexpected and reins in expenses.

• The disproportionate government salaries, as has been featured this week in news outlets, are a major barrier to tax reform.

• A world interest rates increase will put Costa Rica with its massive foreign debt in a bind.

One individual with extensive experience in the U.S. capital markets notes that the colon is the only world currency that has not devalued against the U.S. dollar. The reason is because the Banco Central de Costa Rica is maintaining an artificial price by controlling the currency exchange market, he said.

When the bank is forced to accept economic reality, the dollar will soar above 600 colons in a short period, he predicted. This will be good for exporters who are paid in dollars and for the tourism industry because it will make their services less expenses for foreigners. The colon is now at 540 to the U.S. dollar

This individual advises the use of the daily mini-devaluations that the central bank imposed for years. With such a system those in business could make predictions of currency values for reasonable times in the future, he said.

“Uncertainty is the worst tax of all,” he said. “The most simple solution in Costa Rica is to go back to the mini-devaluation, so over time Costa Rica becomes more attractive to expats who can again say Costa Rica is somewhat of a bargain to retire to.”

Another individual, also with extensive experience in world finance, is a bit more gloomy. He was caught in the 1982 currency071715financial crisis in México and more recently in Venezuela. He believes in hard assets and keeps a stash of gold coins handy.

This investor’s concern is that cash-strapped governments might actually steal the money of bank depositors. Inflation does this slowly already, but he said he has seen governments freeze accounts.

His advice to expats is to acquire hard assets to protect against rapid inflation and to put bank accounts out of the reach of Latin governments.  He encourages buying with the use the use of mortgage instruments denominated in colons. That is an echo of the Costa Rican financial crisis in the 1980s when the value of the colon dropped by half in a short period. This is what is happening in Venezuela now.

Older Costa Ricans still remember the financial crisis under the administration of Rodrigo Carazo, who held office from 1978 to 1982. Inflation approached 100 percent.

The mini-devaluations were imposed in 1987 in response to the rapid inflation of the Carazo government. Economists sometimes call this system a crawling peg exchange rate. The central bank eliminated this system in 2006 and created a system in which the dollar would float between an upper and lower band.

Central bank officials disagree strongly with the idea that the colon is overvalued. They insist that the government, instead, has been subsidize exporters by keeping the U.S. dollar higher than it should be.

The advice of these individuals for expats is simple.

“Pay attention to the news and the subtle political shifts. Invest in hard assets, perhaps real estate, and be prepared to shift strategies if the situation warrants.”

And also: “Buy dollars with the overvalued colon!”


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