Thursday 23 September 2021

Costa Rica Approves Law Against Foreign Speculative Capital

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The Banco Cental offices in downtown San José
The Banco Central offices in downtown San José

Costa Rica’s legislators on Monday approved in second and final debate the “Ley para desincentivar el ingreso de capitales externos” – legisation to discourage the inflow of foreign capital – which is intended to curb speculative investors.

Amongst the controls, investors will be required to deposit 25% of their capital investment in securities in Costa Rica.

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In a statement by the Banco Central de Costa Rica (BCCR) – Costa Rica’s Central Bank – the restrictions do not apply to investments by foreigners in the country in property, plant and other investment projects.

The law provides the BCCR the power to determine the existence of speculative capital and put into effect a series of measures such as and increase of up to 33% the tax capital gains, when necessary

To implement the measures, the Board of Directors of the BCCR must establish there is a risk to the macreconomic stability of the country caused by the inflow of speculative capital, or “golondrina” as it is popularly called in Costa Rica.

On its website, the BCCR says that under current conditions, there are no external speculative capital flows causing imbalances in the national economic system. Therefore, in today’s conditions, it is not necessary to apply the measures authorized by law. However, the approval of the law is justified because it is convenient to have these instruments available in the future if circumstances change and imbalances arise.

The BCCR adds that when the law goes into effect in the coming weeks, it is not expected to have any effect on current variables such as the exchange rate, and capital inflows from abroad or other economic variables.

The bill was first presented to the Legislative Assembly one year ago, proposed by the Government of Laura Chinchilla, after the BCCR deteced a wave of speculative capital seeking to take advantage of interest rates in the country and to send the profits offshore.

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The law will go into effect following the signature of Presidenta Laura Chinchilla (who leaves office on May 8) and published in the official government newsletter, La Gaceta.

Costa Rica so far this year has seen a devaluation of the colon close to 10%, forcing the BCCR to intervene in the dollar exchange market to prevent further collapse of the national currency.

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