by Rod Hughes

As all the media based in Costa Rica have reported, hackers have robbed local people doing banking and even bill paying on line. What is the response of banks whose security systems are foiled and accounts are rifled?

“Tough,” says a report in today’s La Nacion, the nation’s largest newspaper. Local banks, even the privately owned ones with foreign headquarters, are under no legal compunction to reimburse their customers. Banks in developed countries will reimburse clients for Internet theft unless it is proven that it was the result of the customer’s carelessness in protecting his identity. But not here.

In fact, notes La Nacion financial reporter Hazel Feigenblatt, in Britain the same legal vacuum exists but the banks voluntarily stand behind the integrity of their bank accounts, having created their own code. Nor can the official financial supervising body, SUGEF, supposedly a watchdog,agency, force banks to reimburse Internet theft victims.

Worse, says the report, many banks including the largest official bank, Banco Nacional, have only one security measure in place, a single password. The United States has, since 2005, deemed this security system “inadequate.” Meanwhile, some 500 electronic theft complaints have been filed for thousands of dollars of losses and hackers are thinking up new ways to rip people off every day. The variety of ploys is staggering, sniffers, pharming, robots, keyloggers and more.

The banks response is typified by Mario Castillo, president of the Costa Rican Banking Association, who shrugged, “You can’t ask (the banks) to be responsible for something where they have no responsibility.” He did, however, say the association would collaborate on drafting legislation to plug the legal hole, safe in the knowledge that it takes years to pass any law in this country

But not all bank customers are quite so vulnerable. HSBC and, recently, Banco de Costa Rica (BCR) have instituted a second measure against hackers, as well as BAC San Jose, although that bank charges extra for it as an optional service. BCR assistant manager Mario Rivera said that since BCR installed 25,000 “dynamic codes” in December, they have not had a single complaint of theft. Banca Proamerica has a system but only for certain customers and Scotiabank manager Luis Lieberman says his bank will have one soon.

But most of the banks in the country refused or neglected to respond to La Nacion’s inquiries. It appears that until lawmakers force them to, as reporter Feigenblatt wrote, “The banks don’t have to answer to anyone.”

by Rod Hughes

Residents here who earn in dollars or who have dollar accounts are waiting for the other shoe to drop, when the Central Bank lets the value of the dollar vs. the colon sink even lower. The bank lowered the dollar by 4% last Nov. 21, making exporters and dollar savers unhappy.

As explained by business writer Peter Krupa of The English-language weekly The Tico Times in the Feb. 1 edition, the situation carries the danger to this country of overheating the financial situation, leading to even more inflation than the 10+% suffered last year. The bank may lower the dollar value even further.

“As dollars brought by tourists and foreign investors flood into the Costa Rican economy,” wrote Krupa, “the value of the colon against the dollar continues to push up and nudge the exchange rate down, forcing the Central Bank to intervene and buy up the dollars.. By absorbing that foreign currency, the Central Bank keeps the colon’s exchange rate from dropping below the lower limit.”

In the first weeks of this year, the bank had to step in and buy dollars at a furious clip—$43 million in one week alone. “For every dollar the Central Bank buys,” added Krupa, “it has to emit colones and more currency in the market can mean higher inflation.” Add to that the danger of foreign speculators who buy colones as they grow more valuable, and the inflation is raised again.

Krupa writes that a solution would be a completely free-floating exchange rate and that is what a report late last year by Citigroup economist Jorge Pastrana predicted the bank would do the second half of 2008. It would “eliminate the need to emit colones and, by introducing a greater element of risk, make the colon a less attractive investment” for foreign spculators, notes Krupa.

Meanwhile, La Nacion reports that Costa Ricans are saving and investing more in their own currency. In the past 3 months individuals and companies are investing at a rate of 56% colones vs. 44% dollars. These almost an exact reversal, from before the crawling bands were implemented, when 55% of investments were in dollars. As for loans 50% are now in colones, whereas before 60% were in dollars according to the Central Bank of Costa Rica.