President moving to reduce inflow of speculative capital

Casa Presidencial said Tuesday that the president would soon take steps to decrease the flow of dollars into Costa Rica.

A lot of foreign investment is entering the country to take advantage of the higher interest rates here.

A statement from Casa Presidencial after the weekly cabinet meeting said that the inflow of dollars puts at risk the financial stability of the country, jeopardizes exports and hurts employment. This is mainly because, as the Banco Central explained in its year-end report, the interest is being paid eventually to foreign entities without any benefit to Costa Rica.

The statement characterized the flow of money as being prompted by speculation.

President Laura Chinchilla Miranda is considering an executive decree to limit the inflow of dollars, and Casa Presidencial will be presenting proposed legislation to the Asamblea Legislative, said the statement.

There was no summary of how these measures might affect expats who depend on income from other countries. Many U.S. expats here receive monthly payments from the U.S. Social Security System. The proposed legislation might contain a system of assessing a surcharge on money entering the country.

Usually countries welcome foreign investment, but the investment is usually designed to do something productive, such as build a factory or create a tourism location.

President Chinchilla was quoted as calling this inflow of capital arms of mass destruction. She was quoted as favoring some say to reduce the inflow.

The central government has been in contact with the Banco Central to discuss methods to reduce capital inflow, said the statement. The presidential decree would seek to reduce the interest rate, said the statement. The use of state funds was suggested as a way to reduce the current interest rate.

At the end of last year, five-year time deposits in colons were drawing from 10 to 12 percent interest, said the Central Bank.

That is far higher than interest rates in the United States and other First World nations. The inflow of dollars also has
depressed the exchange rate in favor of the colon.

The statement quoted Vice President Luis Liberman as saying that proposed legislation would be sent to lawmakers as a priority Monday. The suggestion was that there would be some type of surcharge imposed on capital arriving in the country.

The statement was lacking in details, but the president has proposed in the past that the government should take a percentage of money involved in bank transactions. Lawmakers did not accept this idea.

This entry was posted in Costa Rica News. Bookmark the permalink.