At the Legislative Assembly this week, a proposal to empower the Central Bank to prevent speculative investments, hot money and capital flight in Costa Rica became law with 32 votes in favor and seven against. Capitales golondrina, as they are known in Costa Rica, are those fleeting and speculative investments made by foreign entities that seek to avoid financial commitments and gain quick profits with little to no tax liabilities.

This legislative proposal, which is now known as the Law to Regulate Financial Exchanges, spent a little over a year being discussed and dissected by lawmakers at the Legislative Assembly in the Cuesta de Moras neighborhood of San Jose. The law intends to prevent those fiscal imbalances created by the sudden withdrawal of funds by foreign investors who arrive in Costa Rica with dollar signs in their eyes and pure greed on their minds.

Among the tools that the Central Bank will have at its disposal to fight capital flight is the imposition of a 25 percent mandatory and non-refundable deposit that will be applied to foreign investors. Another tool will be a certain discretion by the Central Bank to levy increased taxes on interest earned during the first six months of the investment.

Marco Gonzales Ugalde of news daily La Prensa Libre interviewed Jorge Guardia, former president of the Central Bank in Costa Rica, who thinks that the new law will initially put off foreign investors. As a consequence of the stricter investment climate in Costa Rica, the exchange rate may favor the United States dollar in the beginning since the supply of greenbacks will diminish.

It is up to the Central Bank to explain to potential foreign investors that the new law does not seek to curtail long-term investments such as the ones often used to fund commercial real estate projects in Guanacaste.