Costa Rica is currently undergoing special circumstances that, if handled correctly, will be temporary. It is a fiscal deficit that requires legal reform, in the Legislature, that will allow the State not only to collect new taxes but to eliminate privileges and “luxury” pensions, exorbitant amounts for a country whose economic and social situation simply cannot afford them, and to cap the State's expenses.
While the tax reform will not eliminate any rights that have already been legally acquired by beneficiaries, it does create new rules for public employees who do not yet have those benefits and for new government employees.
The legislative process of the tax reform has resulted in a general strike among the public sector, for more than 30 days now and, therefore, a convulsive social situation in the country, albeit without violence. Notwithstanding, the legislative process presses on and the tax reform bill is expected to be approved before the end of 2018.
The entire situation has led to an increase in the exchange rate, Costa Rican colon versus the US dollar, going from 565 colones to over 600 colones to a dollar in less than 30 days.
Furthermore, during the legislative process, and before the bill passed its first debate in the Legislative Assembly, Costa Rican state bonds, which are traded on the National Securities Exchange, experienced a substantial drop in price, creating an excellent opportunity to buy Costa Rican State bonds, with an annual yield of 6% to 7% and that mature in the short term (for example some mature in the year 2022). That gap did close a bit when the tax reform was approved after the first debate in the Legislative Assembly. However, before the bill can move on to the second debate, several consultations must be presented to the judicial branch and other bodies, a process that can take up to 45 days, which is where we are now. Thus, the price for bonds said, in dollars, has not fully recovered and there is still an opportunity to invest in them.
Additionally, since it is likely that many dollars will be sold to buy colones to cover the expenses of end of the year bonuses and salaries, as well as to pay taxes, the exchange rate is expected to stabilize, going down a bit in December. However, it is possible that it will go up again 2019, something predicted by renowned economists throughout the country because, their state, the colon is currently overvalued, and, in their opinion, the exchange rate should be somewhere between 700 and 800 colones per US dollar.
In the real estate sector, the situation is similar. Buyers with dollars will fare well when acquiring properties priced in colones. However, if buyers are looking to make money in the short term, it is important to buy land in areas that are desirable. If they don't, even if bought at a lower price, it may be difficult to sell them later.
On the other hand, if the tax reform process is not handled properly, the country's fiscal situation will worsen, the exchange rate could go over 800 colones to the dollar and it could take longer for the prices of the bonds to recover, resulting in a larger window for foreign investment.