Coffee and tourism: Costa Rica’s economic emblems hit by local dollar slump

Easter week marks the end of the high season in Costa Rica and also the beginning of months of uncertainty for an industry that contributes 8% of the country’s annual wealth, as three million tourists visit. The tourism sector employs nearly 175,000 people, representing one out of every 12 active workers in the country, and it is the economy’s driving force. However, it is now floundering, and this is not because of a lack of customers.

The exchange rate of the dollar against the Costa Rican colón fell 24% between June 2022 and December 2023. In July 2022, it was close to 700 colones per dollar and now it is at 500, as it was a decade ago. The trend has put on alert the growing export sector driven by dynamic foreign-owned companies that manufacture medical devices, although the most vulnerable activities are showing signs of distress. This is the case with tourism and also with coffee producers, who export more than 85% of the harvest and experienced a reduction in the value of sales of almost 13% last year.

Costa Rica is seeing a flood of dollars from the arrival of investment capital and increased exports, but also from speculative capital that has reaped profits from high interest rates, explains economist and consultant Gerardo Corrales, without ruling out the possible influx of money from illegal activities. “Now the tables have turned with the lowest inflation in OECD countries (-1.8%) and with the exchange rate appreciation of 24%, the highest in the world at the end of 2023, but there are no measures in place to offset the situation,” he adds.

“It is a continuous, abrupt devaluation that seems to have no end point,” regretted authorities of the local coffee sector in a press conference in which they urged Rodrigo Chaves’ government to protect the productive base consisting of almost 26,000 farms, most of which are small. Each coffee grower now receives 27,000 colones less per bushel compared to the previous year, a drop of almost 20%, without the costs of imported agricultural supplies falling by the same amount.

“My dad is so sad because this is unsustainable and producing coffee is the only thing he has done all his life, it’s his identity. He feels really bad and doesn’t even want us to talk about it with anyone,” said Manuel C., the youngest of a coffee-growing family from the south of San José, after hearing statements by the vice president, Stephan Brunner, who is also the coordinator of the economic team. Brunner said that those hurt by the exchange rate should look for another activity and that producers should have made financial provisions for the “lean years.”

Rodrigo Chaves has pointed to the appreciation of the colón as a sign of a strong economy (the national GDP grew 5.1% in 2023, among other favorable indicators) and that there are winners and losers in all things. There is widespread unease among export groups and frequent warnings from economists about the impact on employment figures. The Central Bank of Costa Rica (BCCR) is under pressure to adjust the reference rate to push up the exchange rate. However, the monetary and government authorities are acting too sluggishly or are showing signs of reluctance to apply the tools at hand, Shirley Calvo, executive director of the National Chamber of Tourism of Costa Rica (Canatur), a business group of an industry with abundant connections that generates wealth throughout the country, told EL PAÍS.

“They have been reluctant to use the instruments; the response has been almost non-existent and it seems that they are allowing the destruction of the local economy,” said Calvo, who regards Brunner’s comments as “offensive.” She claims that the high season ends after Easter and businesses were unable to save enough money to cope with the low season. She warns that some will close or reduce business operations to a minimum, because the appreciation of the colón also drives local tourists to vacation outside the country, while paying in dollars.

Corrales highlights particular risks for tourism and coffee growers. Unlike other nearby countries, in the Costa Rican tourism industry, it is common for tourists to pull dollars out of their Bermuda shorts to directly pay the tour guide or the ceviche seller, the restaurant bill, the car rental or even the beachside supermarket where they buy refreshments. Greenbacks circulate in tourist areas as much as colones and this has a direct impact on small — and medium — sized businesses.

In the coffee sector, there are other threats: climate change that alters harvest cycles and the instability of the international market, in addition to the temptations of the real estate business. The commitment to produce high quality coffee in environmentally and socially sustainable conditions remains, but this is a critical moment for the sector that contributes less than 0.1% of the national GDP and occupies 14th place in production in the world. However, it has been essential for the development of certain rural areas. “The best coffee in the world” Pope Francis repeated this year when he welcomed a Costa Rican diplomatic delegation.

Activities that are an integral part of Costa Rica’s global image are at risk, says Francisco Mirabelli in a telephone conversation from Monteverde, a town in northwestern Costa Rica known for its cloud forests. He has been a tour guide since 1995 and chairs a trade association that comprises around 3,000 accredited guides. “I can assure you that practically all of us are working with a knife against our backs, looking for additional employment and thinking about what will happen after this week. The same goes for hotels and transporters,” he says. In 2022, a tourist paid US$1.8 for a local beer and now pays almost US$3. The problem, he claims, is that no quick solution is on the horizon. “The tourists perceive this while we try to survive, others work under a lot of stress and the service may be affected, but many people will not be able to endure it,” he concludes.

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