Costa Rica to regulate short-term currency investments from abroad

Vice President Luis Liberman on Tuesday night said administration officials next week would send lawmakers – who return Monday from vacation – a bill to limit the inflow of short-term capital investments that have been detected in recent months and are taking advantage of Costa Rica’s attractive interest rates in colones.

According to officials, since October, Central Bank authorities have detected large amounts of U.S. dollars entering the country and targeting short-term investments after being exchanged into colones. Interest rates in colones are much higher than dollar rates in their home countries.

The bill seeks to highly tax those investments to discourage the activity.

“Short-term capital investments increase the amount of cash in circulation, causing a drop in the exchange rate, which increases the number of loan requests and interest rates at banks,” the vice president said.

According to Liberman, that could destabilize the country’s economy.