Governor Talks - Leveraging Macroeconomic Stability and Digital Payment Systems: The Case of Costa Rica

Location: Cedar Hall HQ1-1-660

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OVERVIEW

Costa Rica has embarked over the years on a multi-dimensional reform program agenda, more recently supported by the successful completion of the EFF/RSF arrangements, that is helping reshape Costa Rica’s economy and advance its climate-related reforms. The Central Bank of Costa Rica has in parallel developed a centralized national digital payment system (SINPE) since early 2000s, which is currently used by more than 90 percent of Costa Rica’s population aged 18 and older. This event will first discuss Costa Rica’s achievements under the EFF/RSF programs and its reform agenda going forward. It will then showcase how SINPE has allowed the country to: (i) reduce transaction costs through a secure digital payment system; (ii) improve tax compliance by facilitating invoice payments; (iii) minimize the footprint of cash usage in an economy that is swiftly moving away from cash; and (iv) foster financial inclusion.

REPORT

Key Points:

Successfully adopting inflation targeting. The adoption of inflation targeting began with a public announcement in 2004 and was effectively implemented in 2006. Over 18 years, the country gradually achieved exchange rate flexibility, officially adopting full-fledged inflation targeting in January 2018. Post-pandemic challenges have required careful management of compound shocks.
Tackling climate risks. Thanks to the successful completion of the first Resilience and Sustainability Facility program with the IMF, Costa Rica has integrated climate considerations into monetary and fiscal policies and created a database to link climate risks to financial contributors. However, accessing necessary data for climate risk analysis remains a work in progress.
Launch of the centralized digital payment system. Sinpe started in the late 90s, aimed to create a modular clearing system for checks and real-time transfers. It has grown organically to include over 30 services, facilitating faster and cheaper transactions. Thanks to this system, currently 90% of the population over 15 years old have a bank account. However, there is a case for improving the efficiency of cross-border payments due to inoperability challenges.

Quotes:

“So, it was a kind of organic thing that led by the needs of the central bank, all the monetary policy and the implementation of an open market operations that are done by Sinpe. So as I said, it started as something very small and now is used for all to all the country” Róger Madrigal-López

“The greening of the international reserves, the design report that we made every year, because we can say how green are the international reserves is something that we are doing and we are planning to continue on that theme.” Róger Madrigal-López

“To have people from the IMF on the ground, it helps a lot in the particular case of Costa Rica and this administration that is, [let me say we government,] because we have [what is] very few legislators and the Congress. [So there is a lot of,] there is not enough trust between the executive branch and the legislative branch. Som time for the dialog [is, can be] is there is a lot of help to have people from the IMF because they are like a trusted advisor.” Róger Madrigal-López

Contributor: Fares Rawah

SPEAKER

Roger Madrigal Lopez
President of the Central Bank of Costa Rica

Róger Madrigal-López is the President of the Central Bank of Costa Rica since May 2022. His professional career has been closely tied to the Central Bank of Costa Rica, where, after holding several positions, he successfully served as the Chief Economist for almost fourteen years (2008-2022). Mr. Madrigal-López has intensive knowledge in monetary policy and quantitative techniques. In the academic field, he has taught econometric and macroeconomic courses at the University of Costa Rica and the National University of Costa Rica.

Mr. Madrigal-López holds a bachelor’s degree in Economics (1987) and a bachelor´s degree in Statistics (1988) from the University of Costa Rica. He also holds a Ph.D. in Economics from The Ohio State University (2004). His dissertation addressed the optimal choice of monetary policy instruments in the context of a small open economy that implements inflation targeting, a key question for central bank policymakers in Costa Rica.

MODERATOR

Rodrigo Valdés
Director of the Western Hemisphere Department

Rodrigo Valdés is a Chilean economist and has been the Director of the Western Hemisphere Department at the IMF since May 2023. Prior to joining the Fund, he served as a Professor of Economics at the Catholic University of Chile and held board positions in various private sector companies. Previously, he served as Chile's Minister of Finance from 2015 to 2017. Throughout his career, Mr. Valdés has held prominent roles at the Ministry of Finance and the Central Bank, including Director of Research and Chief Economist. Additionally, he has served as Deputy Director of the IMF’s Western Hemisphere Department (where he also was mission chief for the US) and European Department. Mr. Valdés has significant experience in the banking sector, having been the President of the Board and Executive Committee at Banco Estado, Chile’s sole state-owned bank. He has also worked as Director and Chief Economist for Latin America at Barclays Capital and as Chief Economist (Latin America ex-Brazil) at investment bank BTG Pactual. Mr. Valdés earned a PhD in Economics from MIT and a BA in Economics from the University of Chile. His contributions extend to publishing numerous academic and policy papers on monetary and fiscal policies, as well as on international finance.