by Rod Hughes
Some years ago, the respected business magazine, The Economist, came up with a novel measure of monetary value and comparison, which they call the “Big Mac Index.” The magazine reasoned that, since everything about McDonald’s food is standardized worldwide. one should be able to measure one nation’s currency with another by using Big Macs as a guage.
By the latest measure, the local daily La Nacion reports today, Costa Rica comes off as being a bargain place in which to live.
Today’s exchange on the floating colon is 467 colones per dollar. The July 5 issue of the magazine says a Big Mac here costs 1,540 colons ($2.96) as opposed to the U.S. price of 1770 colones ($3.41).
All very straightforward, so far, but La Nacion’s economics pundits disagree with those at The Economist. The latter say that the colon is undervalued by 36% while La Nacion’s calculators read only 10% undervalued.
The situation is muddied by the fact that the Arias Administration abandoned the fixed mini-devaluation system to adjust to inflation in favor of floating the national money value against the dollar. The colon began the year at more than 500 per dollar. Whether this was President Oscar Arias’s decision or that of his economic advisors is not known, but the president is a graduate of the London School of Economics, we must remember.
(This writer is not about to enter this debate without, at least, Alan Greenspan at his elbow.)
La Nacion called in a big gun to support its arguement: They consulted respected economist and former Central Bank president Eduardo Lizano who told them that an excess of dollars injected into the national economy by brisk foreign investment in real estate plus higher volumes of exports and some speculation has forced the value of the colon up and the number of colones needed to make up a dollar down.
To complete the Big Mac indicator picture, La Nacion mentions that the burger costs the equivalent of 752 colones while in Europe it will set you back 1,558, not too much higher than here in Ticolandia.
That indicator seems to us like a terrible burdon to place on a product that can be downed in 10 minutes or so…