Costa Rica: A law Too Late

A year after first being proposed, and under different economic conditions, progress has been made on the adoption of the law to discourage "hot" capital.

Tuesday, February 11, 2014

From a press release issued by the Legislative Assembly of Costa Rica:

MPs voted in a first debate, to put a brake on the entry of speculative capital into the country, known as hot money, with an initiative submitted for discussion by the Executive.

Record 18685 seeks to prevent capital which distorts the economy coming into the country.

The initiative states that from the second half of 2012 and part of 2013, the Costa Rican economy provided conditions that encouraged the entry of foreign capital motivated by financial returns, because the rewards for saving using instruments of Costa Rican debt denominated in colones increased due to a quasi-fixed exchange rate, high yields of local securities.

This generated a greater input of external resources coming to the country, prompting a macroeconomic imbalance, pushing up appreciation of the colon and causing an increase in purchases of foreign exchange by the Central Bank, jeopardizing the control of inflation in the short and medium term.

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More on this topic

Costa Rica: Tax Discretion for Central Bank

March 2014

The mere name of the bill approved by Congress "An Act to Discourage Entry of Capital from Abroad" reveals how dangerous this regulation could be for the Costa Rican business climate.

An article in reports that "...This bill was submitted to Congress a year ago, promoted by the Government, after the central bank detected a wave of speculative capital attempting to take advantage of interest rates in the country and then take it abroad."

Costa Rica: No Progress For Law Against Speculative Capital

May 2013

The bill which taxes interest generated by speculative capital has been stalled because it respective Legislative Commission has not been formed yet.

Edgar Ayales, Finance Minister recalled the significance of the future law and added that the problem could take three or four weeks.

Costa Rica: Tax on Money Inflows Could Be Unconstitutional

February 2013

The taxes and proposed measures to control the influx of "hot capital" could be confiscatory and in violation of the principles of reasonableness and proportionality.

The bill which aims to grant extraordinary powers to the executive branch to regulate the entry of foreign capital into the country was approved in committee and has been passed to the legislative plenary for discussion.

Banks Issue Warning On Foreign Capital Act

February 2013

The Chamber of Banking and Financial Institutions of Costa Rica proposes that the law should specify which types of capital inflows will be discouraged.

A statement by the Chamber of Banking and Financial Institutions:

Hot Capital
Banks Chamber warns of gaps in Bill and proposes adjustments