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Chinchilla administration outlines plan to discourage short-term currency investments

January 22, 2013

Finance Minister Édgar Ayales on Monday presented lawmakers with a bill drafted by the executive branch to discourage short-term foreign investment that takes advantage of the country’s high interest rate in colones.

Ayales urged lawmakers to approve “as soon as possible” the measures aimed at taxing foreign capital entering the country by up to 30 percent.

The bill also would give the Central Bank the authority to set rate hikes, define the currency to which it would apply, the terms and maturity of investments and the time during which these measures would apply.

The minister assured lawmakers that the bill “will not affect any national or foreign investment, and it will not promote a decrease in interest rates.”

The country’s financial situation “could be at risk, if we do not to seek a prompt solution,” Ayales warned, adding that the plan is not enough to discourage the entry of these short-term capitals.

Opposition lawmakers were reluctant to quickly approve to the bill. Gustavo Arias, from the Citizen Action Party, said the proposal “does not solve the country’s financial situation,” while Patricia Pérez, from the Libertarian Movement party, said the government must provide a “more valid argument.” She added that she does not support an expedited vote on the bill.

Seventy-five percent of revenue that would be generated by the proposed increase would go to the Central Bank to be used exclusively to redeem the currency stabilization debt.

Along with the drafting of the bill, in recent days the government has tried to reduce interest rates, slashing yields offered by the Finance Ministry for funds collected in the local market.

Since March 12 of last year, the inflow of short-term capitals forced the Central Bank to buy $1.5 billion to prevent the currency from falling below the lower-band limit of ₡500.

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