Petro proposes tax on capital ingested in Colombia

Petro proposes tax on capital ingested in Colombia

The real intent to increase domestic interest, contrary to our suggestion, has to do with avoiding capital outflows due to higher US interest rates. This can be avoided by imposing a transitional tax on remittances to swallow capital.โ€

Gustavo Petro, President of Colombia

After inflation data of 11.44% per annum was known in September, President Gustavo Petro referred to the task of Banco de la Repรบblica by increasing the interest rate, stressing that “the real intention to raise internal interests, other than our proposal is to avoid capital outflows due to US interest rates rise.

That exit could be avoided, the president said, if a transitional tax is imposed on transfers of ingested capital, a proposal that worries investors.

Swallow capitals are those that arrive in a country in the short term and then leave again. The above happens in situations where good incentives and profitability are offered, and once they are taken advantage of, they look for a new market with better investment opportunities.

โ€œIn the past 12 months, $18 billion ($3891 million) of ingested capital has reached the TES market, which is a historic record and an indication that capital also arrives when things are tough. It’s roughly the same as planned,โ€ said Felipe Campos. Director of Investment and Research at Alianza Valores y Fiduciaria

He added that “the biggest buyers of TES are international pension funds, sovereign funds of other countries and central banks. It’s not very easy to say, but they will not invest in a country that restricts them from recognizing their investment when they prefer.”

These investors are mostly speculators. This phenomenon is evident, among other things, in countries with a lower investment grade, i.e. where it is more risky to invest and, as a result, better returns can be obtained.

“Speculation capital is the salvation of countries that lose investment grade. If we want money to come and stay, the recipe is the opposite: to give peace of mind that the rules will not change,” Campos said.

This approach, along with other international factors, has had an impact on the dollar’s price today, which has already exceeded the TRM’s historical maximum of $4,627.36.

This is also due to the president’s announcement of an exit tax on ingested capital. International investors haven’t seen it very well. The volatility will continue,” said Jose Luis Hernandez, a trader at Corficolombiana’s corporate office.

While for Campos, of the bullish behavior of the dollar, โ€œhalf is the strength of the global dollar associated with the same risks of a recession, and the other half, the effects of government capital management messages, which make todayโ€™s devaluation three times that of Chile.โ€

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