by Rod Hughes

Negotiations appear to be progressing well with Venzuela on Costa Rica’s inclusion in the Petrocaribe agreement to give this country a break on petroleum purchases. reported the daily paper La Nacion today. The negotiation team has been in Venzuela’s chief oil port of Maracaibo since Saturday.

Benefits are numerous under the pact. Today, Costa Rica buys 95% of its fuel from Venezuela but must pay for each purchase within a week. This forces the government-owned national refinery (RECOPE) to take out costly short term loans to buy an average of 18,000 barrels daily. Under the pact being negotiated, the country would be able to pay for 60% of this oil over a 35-year period at a fized interest of 1%. Venezuela may even grant a two-year grace period. The remaining 40% (not half as we repoted previously on erroneous information) within 90 days at no interest.

Foreign Minister Bruno Stagno, Energy Minister Roberto Dobles and RECOPE chief Jose Leon Desanti head up the Consta Rican delegation. Earlier in the year, President Oscar Arias turned a cold shoulder to the Petrocaribe pact when relations with Venezuela President Hugo Chavez were colder and the petroleum prices had not shot through the roof, but today expresses satisfaction with the way negotiations are going. Originally, Costa Rica was invited to the Maracaibo conference ias an observer but was later invited to participate.

The conditions of purchase would apply only as long as opetroleum does not fall below #100 per barrel, but, as Arias noted, one should not hold one’s breath in anticipation of this happy event. This year, the country is expected to shell out $2.8 billion for fuel, double last year’s expenditure. As Minister Dobles observed, under current conditions this puts the country’s economy “under enormous stress.”

(This week, we received vague information that Venezuela might ask Costa Rica, in return for all these favors, use of an oil pipeline, but this was not mentioned in La Nacion coverage. The only pipeline in Costa Rica runs from the Caribbean port of Moin (where RECOPE is located) to the Central Valley and whether that was a Chavez offer to consturct a pipeline from there to the Pacific is unclear. The Panama Canal is too small for supertankers so such a step would be feasible, but it may be just an idle rumor. It would appear that Nicaragua would be more logical, taking into account the warm relations between Chavez and Nicaraguan President Daniel Ortega.)

by Rod Hughes

Central Bank directors must feel like a juggler on a high wire. First, they had to combat rampant speculation through the Internet. Now, faced with rising prices of such high-demand imported items as petroleum and construction materials, they have ben forced to weaken the currency they supervise against the already weak dollar, reports the daily newspaper La Nacion.

In a late night session yesterday, the currency supervisory body decided to drop the selling price from 572.55 colones per dollar to 555.37 while the purchase price went up from 488.67 to en even 500. Yesterday the sale price of the dollar averaged 551.31, according to Central Bank calculations. According to Central Bank officials, when the exchange rate of the dollar reaches its highest limit, the bank intervenes in the market to prevent a continuing rise.

The two biggest factors in the wild fluctuations that currencies have seen recently is speculation brought on by the effects on all trade by rising world petroleum prices, something beyond the ability of any country’s bank to regulate. Therefore, it seems to the unformed that the central banks are merely, as the old saying goes, rearranging the deck chairs aboard the Titanic.

But the Costa Rican Central Bank has been fiddling with the controls to prevent further inflation that has already hit the poor in this country. The bank was reported in a previous blog as promising drastic “economic adjustments” to prevent this and they are beginning now. Last year the government proudly reported a record drop in the percentage of the population under the poverty level and a drop in unemployment. It is cosnidered unlikely that this happy situation can continue.

(The Tico Times, Central America’s leading English-language publication, is planning a comprehensive coverage of the economic impact of the Central Bank measures this Friday.)