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(506) 223-1327              Published Tuesday, July 24, 2007, Vol. 7, No. 145          E-mail us   
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Turrialba volcano's gases send acid rain downwind
By the A.M. Costa Rica staff

Gas output from the Turrialba volcano is increasing, and when the gas mixes with precipitation, an acid rain is the result.

Vulcanologists report that the acid rain is damaging plant life in an around the volcano, mostly to the west and northwest, including in the area of the settlements of  La Picada and La  Silvia.

Vegetation, including trees, are losing their leaves and water sources are being contaminated. However, no reports have come in yet measuring how far the acid rain is traveling.

The Observatorio Vulcanológico y Sismológico de Costa Rica  of Universidad Nacional said that thousands of low-level micro-quakes are taking place below the mountain, although most are so small that even nearby residents do  not feel them. The quakes seem to increase the outpouring of noxious gases.

The surrounding Parque Nacional Volcán Turrialba has been closed to visitors, and the Comisión Nacional de Emergencia is continuing to await the possibility of evacuation of the estimated 200 persons who live on the skirts of the volcano.

According to the Red Sismológico Nacional of the Universidad de Costa Rica, Turrialba has had at least six major eruption periods during the last 3,400 years, but only one in historic times. That was in 1864 to 1866. The adjacent volcano, Irazú, to the west erupted from 1963 to 1965.
turrialba volcano
Red Sismológico Nacional photo
January 2006 photo of the volcano craters taken from the north.

Volcanologists expect an eruption of some sort within the next few years or decades, and like the Irazú eruption, they expect several layers of ash on the Metropolitan area. The major involvement will be confined to some two to three kilometers around the volcano. However, they point out that the volcano now could also return to dormancy.

Before and after the 1884-66 activity the volcano showed intensified activity in emitting gases. The current activity began in 1996. Since the end of 2006, observers have seen an increase in the area covered by the fumaroles or the gas-emitting ducts.
Vucanologists said they would expect to see more activity including landslides and stronger seismic activity before a major eruption.

The volcano is 24 kilometers (about 15 miles) west of the city of Turrialba.

Anti-treaty legislators stay away to prevent action on key measure
By the A.M. Costa Rica staff

Legislators opposed to the free trade treaty boycotted the Asamblea Legislativa Monday and prevented passage of a measure that would have greased the skids for a package of measures consistent with the pact.

Only 34 legislators showed up. A quorum is two-thirds or 38 lawmakers.

On the agenda was a measure called 41 bis that limits debate on certain bills and prevents opponents from filibustering indefinitely.

Absent were most of the members of the Partido Acción Ciudadana, which opposes the treaty.

Although pro-treaty lawmakers were critical of the boycott, Alberto Salom Echeverría, of the Partido 
Acción Ciudadana said the failure to show was not a walkout but simply a lack of interest in the topic.
He chided the ruling coalition and said that it has 38 votes, the number needed for a quorum.

Salom also said that he viewed the Oct. 7 referendum on the trade treaty as a winner-take-all affair and that he opposed passage of treaty-related bills until the results of the referendum were known.

Meanwhile, Ottón Solís, the Partido Acción Ciudadana presidential candidate and party leader, said he was going to the United States to discuss his opposition to the trade treaty with financial organizations and legislators there.

Costa Rica is the only country in the Central American treaty that has not approved the agreement.

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San José, Costa Rica, Tuesday, July 24, 2007, Vol. 7, No. 145

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Verdi's "Falstaff' being staged
by Compañía Lírica Nacional

By the A.M. Costa Rica staff

The Compañía Lírica Nacional is staging Guiseppe Verdi's "Falstaff" at the Teatro Nacional starting Friday night.

The comic opera is Verdi's last. He wrote it when he was in his eighth decade. The opera first was staged in 1893.

The opera is being presented in Central America for the first time.

The opera is based on the Shakespearean character Sir John Falstaff, who is a rogue, liar and cheat. The opera itself is based on the Shakespearean drama "The Merry Wives of Windsor," although Falstaff appears in several other works of the bard.

The staging here has 10 Costa Ricans in the 12 major roles. The curtain goes up at 7 p.m.

Subsequent performances are Sunday at 5 p.m. and Aug. 1 and 3 at 7 p.m. and Aug. 5 at 5 p.m. There are performances Aug. 8 and 9, too. Except for Sundays, curtain is at 7 p.m.

In addition to the national opera company, the Orquesta Sinfónica Nacional will provide the music as will 40 members of the Coro Sinfónico Nacional.

The opera is a love story, but it also is dominated by the anti-hero Falstaff. Kim Josephson is in the Falstaff role.  José Luis Sola is Fenton, a young man in love.  María Marta López is Nanetta, the object of Fenton's affections.

Health minister threatens
to cancel Limón carnival

By the A.M. Costa Rica staff

Dengue is epidemic in the Provincia de Limón, and the health minister said she would suspend the October carnival if the situation did not improve.

Part of the problem is hostility to health workers who are spraying for mosquitoes in Limón centro. They have had run ins with residents.

The minister, María Luisa Ávila, already has canceled a festival planned for next week in Limón. The province has more than 3,100 persons ill with the mosquito-born disease and 40 of those are ill with the dangerous hemorrhagic form.

Throughout the country more than 8,000 persons are ill. The other trouble spot is the Pacific coast.

Dr. Ávila is calling upon the residents to cooperate with the fight against dengue. She said she wants a 20 percent drop in the rate of illness or she will cancel the carnival. She has that power as the nation's senior health official.

The carnival is a tourist attraction and a major money maker.

Belén named best town
in financial resources use

By the A.M. Costa Rica staff

The Contraloría de la República, the nation's financial watchdog, has named Belén the most effective municipality in 2006. Golfito came in last, said the agency.

The rankings reflect the Contraloría opinion of how the municipalities have managed their financial resources.

Santa Ana was second. Colorado, which received a major infusion of cash from a back debt in 2006, was third and Garabito was fourth. The others in that order were San José, Escazú, San Isidro, Santa Cruz, Cóbano and Montes de Oca.

The second worse was Dota. Peñas Blancas was third from the end and Coto Brus was fourth from the end. Also in the worst category were Alajuelita, Guácimo, Puriscal, Siquirres and Buenos Aires de Puntarenas. Some of the low-ranking communities had deficits, the Contraloría said.

ecstasy haul
Ministerio de Gobernación, Policía
y Seguridad Pública photo
Part of the record haul of ecstasy

Air passenger detained
with big bag of ecstasy

By the A.M. Costa Rica staff

A 31-year-old Israeli tried to bring more than 18,000 doses of the drug ecstasy into the country Saturday, law enforcement officials said Monday.

He was identified by the last name of Koren. He came to Juan Santamaría airport from Spain, said Fernando Berrocal, minister of security.

The drug weighed nearly four kilos, nearly 8.5 pounds, said the Policía de Control de Drogas.

Berrocal said it was clear that the drug was for consumption in Costa Rica and not for shipment to other countries. Costa Rica is a major transit point for drugs, mostly from Colombia. He said that was the largest quantity of that type of drug ever encountered in Costa Rica.

Meanwhile, in Coto Brus near the border with Panamá, drug agents found 959 kilos (1,110 pounds) of cocaine hidden in the cab of a truck. Arrested was a 35-year-old man, the driver, with the last name of  Jiménez. Also detained was the truck owner who was driving nearby on a motorcycle. His last name is  Montero, agents said.

Former teacher held in U.S.
to face rape charge here

By the A.M. Costa Rica staff

U.S. marshals have detained a Costa Rican teacher wanted for aggravated rape and coercion. The charges stem from the time he was working at Escuela de El Cajón in Grecia and three times forced himself on a sixth-grade student in exchange for improving her grades and eliminating records of her absences, said law enforcement officials here.

The man was identified as Luis Gustavo Alfaro Soto, 32. He was reported to be in the United States illegally. He was located in the State of New Jersey, officials said.

Alfaro is a native of Sarchí. U.S. immigration agents participated in the arrest, and officials said the man would be deported to Costa Rica.

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San José, Costa Rica, Tuesday, July 24, 2007, Vol. 7, No. 145

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bolsa de valores
Investing locally means facing some unique challenges
By Dan Chaput*
Special to A.M. Costa Rica

Not many people in Costa Rica understand the local financial markets.  Ticos as well have a very low rate of financial investing with only 1 of every 20 being an investor as compared to 1 of 2 in the United States.  I get questions all the time asking if there are good opportunities in Costa Rican markets.
I was hired by the Costa Rican stock exchange (La Bolsa Nacional de Valores) a few years ago right after a market crash to help with some projects to provide more liquidity in order for the local markets to try to avoid crashes of the same type in the future.  I'll try to explain the good, bad and ugly of it all to help readers decide if this is something worthy of hard earned dollars.

Let's start with the risk rating of the country as a whole. Every country in the world has a “debt rating” which measures how at risk the country is of not paying its debt.

Standard & Poors ratings range from AAA (like the United States and European Union) to D (for “in default”).  Costa Rica is right in the middle with a BB which falls under the category “below investment grade” or “junk debt.”

This means that the best rating any stock or bond could have in the country is “junk.”  It is not possible for a Costa Rica-based investment to have a rating higher than that of the country as a whole.

The Costa Rican market is basically made up of a few components (percentages are approximations):

    -bonds 15 percent,

    -recompras (repurchase agreements) 75 percent,

    -real estate funds 4 percent, and

    -stocks 1 percent.

I know what you are thinking. If 75 percent of the market are those “recompras,” maybe I want those?  Hold your horses.

Bonds — All bonds are either issued by a government agency (the treasury or the central bank) or are private.  Very few bonds are liquid with the exception of a few dollar-denominated government bonds which trade internationally.

Recompras — These are leveraged short-term debt obligations with something backing them, either a bond, a mortgage or real estate.  They tend to be short-term between 30 and 90 days.  These have much more volume because
many Ticos like short-term instruments to keep risk down. Because of the short-term nature, brokers can get much more volume and commissions, so this is what they tend to sell the most.

Real estate funds —  These are like real estate investment trusts in the United States or Europe. These are mutual funds that hold office buildings or sometimes residential projects to where the investor is an owner of the holdings inside the fund.  These can be relatively safe or risky.  Be sure to read the prospectus to evaluate the projects inside.

Stocks — This market was virtually non-existent in Costa Rica just a few years ago. At this time there are only 5 publicly traded companies in Costa Rica, the most liquid of which is FIFCO, the beverage company that makes Imperial and the Tropical drinks. Other companies include Atlas Electric and Durman Esquivel. The local stock indexes have done quite well over the past year with almost a 100 percent return.

You may be thinking “OK, it isn’t perfect, but higher risk means higher reward!”  Not always. As a guy that likes to speculate now and then, I can tell you that a vital component of a good market is liquidity.  There are few instruments here with good liquidity, so caveat emptor!

Right now there are few products which offer good return for the risk level. On top of that, commissions can be quite high, and sometimes the broker will try to ask for a cut of your winnings when you sell. For example if you made a 10 percent return (which is way above average for Costa Rica) your broker may say “Hey, nice return. How about 8 percent for you and 2 percent for me”. I have never heard of such a thing elsewhere! If your broker tries this, find another one.

More and more local investors are looking to international markets outside of Costa Rica to avoid the problems locally, but all is not lost with Costa Rican markets. I know that the exchange and the regulators are working hard on new ideas and new projects to improve regulation, liquidity, and diversity. 

One of the latest developments from the exchange is a project called “M.O.R.E” which intends to give small- to medium-sized companies an efficient platform on which to go public. That's not a bad idea.
What do I do for my clients? For the time being, I recommend safe, well regulated markets in the United States or Europe with liquidity and diversity.  Costa Rica is OK, but if you take the plunge, don’t make it a large part of your portfolio unless there is a really good reason for it.

*Dan Chaput is a three-year resident of Costa Rica and an independent consultant for local brokerage firms and individuals.  He can be reached HERE.

Tons of dollars coming here could bust budgets of expats
By Dennis Rogers
Special to A.M. Costa Rica

Expats with a fixed dollar income had better hope the Banco Central de Costa Rica can hold its ground against the steady stream of dollars entering the country. With considerable effort, the bank has kept exchange rates steady. But inflation continues.

The system in place since October 2006 did away with programmed devaluations and took up a policy where the bank sets exchange rate targets within a “band” of acceptable upper and lower limits. These targets were also supposed to devalue slowly.

The colon has stubbornly refused to devalue, and the bank has had to intervene and buy dollars to stop it from appreciating above the established limit. A serious appreciation of the colon would be a disaster for tourism and many export businesses.

The central bank in effect prints money to buy the dollars. This means more local currency in the economy with no increase in available goods and services, with inflation the result. Inflation for calendar year 2006 was 9.4 percent, which the central bank trumpets as the best since 1993. The new policy was only in place for the last two and a half months and was presumably a marginal contributor to the change.

So far interventions have been regular, with more than $779 million purchased on the local market from October 2006 through February 2007. Inflation continues although at a lower rate than the same months in 2006. A regular poll of outside experts taken by the central bank’s research department shows an expectation for the next 12 months of about 9 percent inflation. These experts think there will eventually be some devaluation over that time span, perhaps 2.5 percent.

If this is true, anyone with a dollar income will find their buying power in the local economy eroded by about 6 to 7 percent, without taking into consideration inflation in dollar prices worldwide.
banco central

Another way of looking at the relative value of the colon is the Big Mac index produced by the Economist magazine. This purports to measure Purchasing Power Parity (PPP)

“The Big Mac PPP is the exchange rate that would mean hamburgers cost the same in America as abroad. Comparing actual exchange rates with PPPs indicates whether a currency is under- or overvalued,” relative to the dollar, explained the authors of the survey.

True calculations of PPP require a broader basket of goods and services, but the Big Mac is easier to compare than a plate of Costa Rican rice and beans, Mexican beans and tortillas, or Uruguayan milaneza. Proponents of the hamburger theory claim it does predict long-term exchange-rate movements.

In theory, exchange rates should converge to reflect their actual buying power, but components such as local rents and labor cannot easily be traded across borders the way beef and onions can. So in reality the index is only of use in comparing economies at similar levels of development, with similar wage scales.

According to the cost of the burger when the survey was taken (higher now), the Big Mac PPP has the colon undervalued by 36 percent.

Because of the lower cost of labor, poor countries’ currencies usually show up as undervalued. Among countries in Latin America with a similar state of development, Argentina is -22 percent, Chile -13 percent, Mexico -21 percent, and Uruguay -24 percent.

The Costa Rican colon thus appears excessively undervalued. Without the bank’s intervention it should gain and be less undervalued. With the above countries as a guide, in a free market about 435 colones to the dollar would mean equilibrium. The exchange rate now is  520.75 to one U.S. dollar.

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San José, Costa Rica, Tuesday, July 24, 2007, Vol. 7, No. 145

Noriega's legal team makes bid for his return to Panamá
By the A.M. Costa Rica wire services

Lawyers for former Panamanian dictator Manuel Noriega have asked a U.S. judge to block his possible extradition to France to face money-laundering charges. Noreiga is seeking to return to Panamá when he is paroled from a U.S. prison in September.

The legal troubles of Panama's former military leader are likely to continue when he is released from a U.S. prison Sept. 9, after serving 17 years of a drug sentence. The governments in both France and Panamá are seeking the custody of Noriega to answer for crimes he allegedly committed while he was in power.

Noriega was convicted in 1992 in the United States for protecting Colombian drug cartels shipping drugs to the United States, and sentenced to 30 years in prison. He was convicted in France in 1999 for laundering millions of dollars in alleged drug money. He faces a 10-year jail term there.

In Panama, Noriega is accused of taking part in the killings of at least two political opponents.

Noriega's attorneys filed motions in a Miami court Monday asking that he be returned to Panamá to fight the charges against him.

Attorney John May says U.S. courts for years have classified Noriega as a prisoner of war under the Geneva Conventions, because he surrendered during a U.S. military invasion launched in 1989.

"The French request would contravene the terms of the Geneva Conventions which require that General Noriega be repatriated to Panamá," he said.
U.S. attorneys representing the French government filed the extradition request in Miami. Last week, a U.S. State Department spokesman said the decision will belong to a Miami judge whether to order Noriega's extradition to France or to Panamá. The judge is expected to hold an initial hearing Thursday.

Guy Lewis, a former U.S. attorney who helped prosecute Noriega, says he feels the French request will prevail because it has satisfied U.S. legal requirements. "He was tried [in France], he was convicted, and now it is time to pay the piper. I think he will have to go to France, serve his sentence, and eventually I think he will make his way back to Panamá," he said.

Noriega's attorneys say they believe that officials want to send the former leader to France in an effort to spare Panama's President Martin Torrijos from any political embarrassment. Panama's government says it has filed several extradition requests in Washington, and says it wants to hold Noriega responsible for alleged crimes during his years in power.

Former prosecutor Lewis says officials at the time of Noriega's 1992 conviction made no provisions for possible future cases against him. He added he is not surprised by the current battle over custody.

"This of course was the first time that a foreign leader had been indicted, arrested, brought to the United States, prosecuted and convicted." For better or worse, this is the kind of case that seems to make legal precedent on a regular basis, he said.

Lewis says the Noriega case has been a key test of the U.S. justice system over the years, and he says he expects it will continue to do so in coming weeks.

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