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Costa Rica Seeks to Slow Capital Inflows as Currency Gains

Costa Rica’s government will seek Congressional support next week for legislation targeting short-term capital inflows after the country’s currency jumped the most against the dollar in Latin America.

President Laura Chinchilla and Vice President Luis Liberman, speaking to reporters today in San Jose, said they want Congress to raise the percentage of capital inflows investors must keep in longer-term deposits as well as increase taxes on profits from those investments to 25 percent from 8 percent. The government will give more details of the plan on Jan. 17.

“Speculative capital inflows are real and massive weapons of mass destruction against the economy of a country,” Chinchilla said.

Costa Rica’s currency, the colon, has gained 2.2 percent versus the dollar this year, the most among Latin American currencies tracked by Bloomberg. The colon has gained 1.5 percent versus the dollar over the past 12 months, the most of any Central American economy. The colon fell 0.1 percent to 497.33 per dollar today.

The central bank lets the colon’s value fluctuate daily within a “crawling band” system that allows for movement between a fixed ceiling and floor. Today’s band ranged from 491 colones ($0.99) to 502 colones, according to the central bank.

The central bank has bought more than $150 million in the currency market since the start of the year to help stabilize the colon, Liberman said. A strengthening currency hurts exporters by making their goods more expensive abroad. Monica Segnini, president of the Costa Rican Chamber of Exporters, said the chamber was “pleased to hear” of today’s proposal, newspaper El Financiero reported.

Liberman will send Congress the proposed legislation next week, he said.

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