San José, Costa Rica, since 1956

Central Bank President Leaves Strong Legacy

Central Bank President Leaves Strong Legacy



When this reporter and a Tico Times photographer met with Francisco de Paula Gutiérrez, the president of the Central Bank of Costa Rica (BCCR) welcomed us into his office, offered coffee, sat comfortably in a leather lounge chair and repeatedly apologized for running a few minutes behind schedule – something unheard of (the apology, not the delay).

As we waited for coffee, we discussed the bank president’s educational background at the University of Costa Rica and at the University of Pennsylvania, in the United States, where he earned a doctorate in economics. Gutiérrez also told us how he grew to like the city of Philadelphia, in Pennsylvania, and how he became a fan of the Philadelphia Eagles football team.

When the coffee arrived and we settled in for the interview, we weren’t accompanied by a BCCR press liaison – something else that is unheard of for an interview with a member of the upper rung of government. We asked Gutiérrez if someone would be coming to sit in on the interview.

“I think I can handle it,” he said.

It has been this demeanor – a calm, affable, calculated, “I think I can handle it” attitude – that has marked Gutiérrez’ eight-year reign as president of the Central Bank. Since assuming the role in 2002, he has established the “buy” and “sell” bands system for managing the currency’s exchange rate, created the Monex money market where currencies can be electronically exchanged, and successfully shielded the country from the potentially devastating affects of the worldwide economic crisis.

And this is how he probably will be remembered.

In a surprise announcement Tuesday, just days after the interview with The Tico Times, Costa Rican President-elect Laura Chinchilla said that Gutiérrez will step down from his post on May 8 when she assumes the presidency and will not serve as the Central Bank president in the new administration.

On Tuesday, commenting on Gutiérrez’ exit, Chinchilla said, “He has been down many complicated roads but, thanks to his management, we have an economy that maintained stability during the economic crisis.”

In what will probably be his last interview as BCCR president with this publication, The Tico Times met with Gutiérrez to discuss the role of the Central Bank president, the recent unusual activity in the exchange rate and the possibility that fluctuations in the exchange rate could be manipulated for profit.

TT: What’s a typical day for the president of the Central Bank?

FG: A typical day doesn’t exist. Much of my time is involved with monitoring the economy, which includes the national economy and the international economy.

A large part of my role is to observe what is happening and the behavior of the principal markets in the world, such as the markets in the U.S., and to monitor how the changes in those markets and economic indicators are affecting the Costa Rican market. It requires a lot of analysis but, at the end of the day, I’m able to sleep at night.

Every day, there is a different exchange rate between the colón and the U.S. dollar. At the end of each day, when and how does the Central Bank decide what the value of the exchange rate will be for the following day?

In fact, we actually do not decide the fixed exchange rate. We have to report something that we call the “exchange rate difference.” The difference is calculated by the Central Bank by averaging the exchange rate fluctuations over the course of the final three hours of the day. We don’t speculate and we don’t decide what the exchange rate will be. In the bands system that we have established now, the exchange rate is the averaged difference that has been observed in the domestic market over the course of the day. In the case that the exchange rate rises close to the upper band, the Central Bank intervenes to keep the exchange rate within the established bands. If the exchange rate is very low and closer to the lower band, the bank has to buy colones to maintain the band levels. Since August of last year, we have not had to intervene in the exchange rate market. It’s functioning practically as we hoped it would.

Why has the value of the dollar against the colón been going down lately?

There is more supply (of dollars) than demand. In the bands system, the supply side is driven by exports, by tourism and by the movement of capital. The demand side is driven by the level of imports and the payment of debts and taxes. During the latter part of last year and the early part of this year, the country was experiencing a little more supply than demand (of dollars) and that is what is causing the current situation in the bands and the exchange rate. Other markets around the world are experiencing the same thing. Many large markets, such as the U.S, experienced significant economic drops due to the crisis. This has lowered international demand.

Do you think that as the worldwide economy recovers, the colón will begin to depreciate again?

We are not prognosticators. The exchange rate depends on many factors and the role of the Central Bank. We monitor the markets to watch what is happening and intervene in the bands system when necessary, but we don’t predict what is going to happen.

Questions have been raised about the day-to-day jumps in the exchange rate, as when a ¢5 difference is seen from one day to the next. Some people believe that if someone were to have the notion that the exchange rate would fall or rise the following day, they could manipulate Monex and make money by switching currencies. What are your thoughts on that?

The volatility in the market is always in flux. We have done studies about the volatility of the markets and ours is not (much different) than other markets in the world. In fact, the volatility in the colón over the last few months is similar to rhythms that we have seen in the past.

I don’t see that people have any way to obtain insider or privileged information. No one knows how many dollars banks move during a day. I also don’t think that any companies or investors have enough strength to move the system or bands by themselves.

It seems that it you look at the history of the exchange rate over the last three years, we have had a very strong period that reached its peak in May of 2008. At that time, everyone said to sell dollars and get colones because the exchange rate is going down. For many it went very poorly, because they sold dollars and they weren’t able to buy them back for as cheap as they expected. Oscillations are normal and I don’t think most companies are trying to predict the rhythm of the exchange rate fluctuations.

Would it be possible for a bigger company or one that has more influence in the market to move the exchange rate?

If I decide today that I am going to sell $15 million dollars for colones, the question is: What do I earn from this? What can I get from playing the market that way? If I have a lot of money, I can lower the exchange rate. However, to buy the dollars back, I would raise the exchange rate. It is not clear if I would be able to earn any money from this. It’s a bet. I don’t know why anyone who has that much money would want to risk it on a gamble. …Banks have limits in place that do not allow for the exchange rate to fluctuate large amounts in one day.

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