By Isabella Cota
SAN JOSE Jan 15 Costa Rica will this week
propose capital controls to Congress in a bid to tackle a recent
surge in financial inflows that threaten to boost the currency
and destabilize the economy.
The move makes Costa Rica the latest emerging market economy
to seek barriers to foreign investment to check an appreciation
of its currency, which makes exports less competitive.
Low interest rates in developed economies have encouraged
investors to seek higher returns in Costa Rica, where the
benchmark interest rate is currently at 9.05 percent.
Costa Rican President Laura Chinchilla said on Tuesday
investors had turned "capital into real weapons of mass
destruction," that threatened the financial stability of the
"If we have to go to war, then we will go to war because we
are not going to put at risk the macroeconomic stability that
has been so difficult to reach after the crisis," she said,
citing an expression recently popularized in South America which
refers to the battle for currency stability.
One proposal would involve raising the tax rate for foreign
investors buying Costa Rican government bonds.
"The surcharge is an additional 25 percent on top of the 8
percent they already pay," Vice President Luis Liberman told a
news conference. "It's substantial."
He declined, however, to say whether this proposal would
mean calling for a 33 percent tax rate for foreign investment.
Another proposal seeks to drive down interest rates by
requiring savings of large state-run institutions to be
deposited exclusively in public banks, according to an official
In Brazil, a number of taxes - including on short positions
in FX derivatives, on foreign purchases of local debt and on
credit card purchases abroad - have been used to stem the
overheating real in that country's so-called currency war.
Costa Rica's central bank has bought $150 million in the
last 15 days to maintain its exchange rate within a set band.
The colon traded around 497.60 per U.S. dollar on Tuesday, but
reached as high as 511.70 on Jan. 2.
Costa Rica, a Central American country of 4.5 million known
for its beaches and high-quality coffee exports, has a fiscal
deficit of 4.5 percent of gross domestic product.
The proposals will be sent to Congress on Thursday and are
expected to be discussed next Monday.