The nation’s finance minister gave lawmakers Monday a proposed law that is designed to discourage short-term foreign investment in Costa Rica.
The measure proposes a 30 percent retention of money being moved out of the country by an entity that is not a Costa Rican resident. The proposal also seeks to establish obligatory terms of investment, perhaps as much as a year.
The proposal gives the Banco Central directors the power to institute these measures to maintain the stability of the economy.
The measures are certain to face legal attack. The Costa Rican Constitution generally requires foreigners to be treated equally. In addition, Article 10.8 of the Central American Free Trade Treaty said that all transfers relating to a covered investment are to be made freely and without delay into and out of its territory.
The treaty covers the United States as well as the Dominican Republic and other Central American states.
A letter sent by Casa Presidencial to legislators said that the Banco Central purchased $1.6 billion in dollars since last March. Some 87 percent of the purchases were since September, it said.
The influx of dollars contributed to the appreciation of the colon in an incoherent manner which limited the possibilities of economic growth and the generation of employment, said the letter, adding that the inflow also put at risk the control of inflation in the short and medium term.
There is no guarantee that lawmakers will produce a bill that is anywhere close to what Casa Presidencial wants. Some political parties already are saying they want to see a big cut in interest charged to citizens by financial institutions. Cutting the interest rate has been advanced as one way to discourage foreign, short-term cash investments.
The Spanish language daily La Nación editorialized Monday that governmental action was late.
The effort to discourage sending money overseas is subject to many exceptions that appear to be designed to maintain normal commerce.
The government calls the speculative investments capitales golondrinas, named after a bird, the golondrina (Hirundo rustica), which is migratory.
Money transferred out of the country generally is subject to a retention of 8 percent, mainly for anticipated income taxes.
That regulation has not been strictly enforced by the government. But that means the retention on speculative capital moving out of the country would be 38 percent.
Still unstated is how the legislative proposals would handle the transfer of cash generated from, say, the legal sale of property by a non-resident, such as a Canadian snowbird. Legislative actions frequently have unintended consequences.
Edgar Ayales Esna, the minister of Hacienda, presented the government proposal Monday to the leadership of the Asamblea Legislativa. The bill received No. 18.685.