Argentines discover hundreds of millions of dollars in savings that were previously hidden for fear of possible confiscatory measures by the previous government. The tax amnesty launched by the libertarian president Javier Milei is a success in a short time. For the project to be an absolute success, it would be necessary to raise around 40 billion dollars between all its phases. This objective seems positive today. In addition, analysts believe that this could be essential to revive the country’s moribund economy and its scarce foreign exchange reserves. The “appearance” of millions of dollars and the corresponding payment of taxes could help the Milei government to finish consolidating the budget surplus and generate confidence in the economy. It is worth recalling that during the months of July and August, some indicators of economic activity (leading indicators of industry) began to rebound. The success of this measure could give new impetus to the recovery, bringing the Argentine economy a little closer to the shore before drowning.
Private dollar deposits in Argentine banks increase sharply in the first phase of the Milei plan, which ends on September 30. While no data has yet been released on the amounts specifically declared under the amnesty since it began in mid-July, the data released by some entities is encouraging. This data comes as Argentina’s CPI appears to have stalled at 4.2% per month in August, which has been a disappointment for the economy. Milei has taken new measures to combat inflation (such as reducing the PAIS tax on imports), but it will take some time for them to take effect.
“Dollar liquid reserves (excluding Chinese swap line, BRI and gold) stand at about $4.5 billion, according to the latest data. It is worth noting that dollar reserves at the central bank have increased by $2.3 billion since the end of June, partly due to a $1.3 billion increase in dollar deposits under the recently launched new tax amnesty“, they assure JP MorganAll this means that the country risk (the premium paid by Argentine debt compared to that of the United States) falls back to around 1,400 points.
The data of the The central bank shows that Argentines made net deposits of $728 million in July and $749 million in August. This is up from the $532 million net monthly average during the first seven months of Milei’s presidency. But it contrasts more with the trend before Milei’s arrival (the arrival of the libertarian president was already accompanied by the hope that this amnesty would be launched), where net withdrawals averaged $70 million per month (in the two years before Milei’s arrival). Argentines hid their dollars for fear that the previous government might approve some form of confiscation to meet the economy’s need for dollar liquidity.
Argentina’s long history of economic turmoil, marked by hyperinflation, currency controls and government restrictions on access to savings, has led citizens to keep some $258 billion out of their financial system, according to official estimates for early 2024. Experts and investment banks estimate that most Argentines keep a good portion of their savings in dollars, either under mattresses, in safes or in accounts in the United States and other countries.
The government believes that tapping into these dollars could help solve its two biggest problems: revitalizing a real economy that has been battered by a multi-year crisis and Milei’s austerity measures, and boosting the bank’s still-small central foreign exchange reserves. The central bank’s balance sheet is undergoing intense changes to change its structure and operation. In addition, Milei has begun transporting some of Argentina’s gold to London to use as collateral in an international loan to help the country refinance itself and avoid default.
“We are living a moment of historic change for Argentina and the amnesty plays a very important role,” Economy Minister Luis Caputo said late last month. “The goal is not to collect taxes, it is to relaunch Argentina.” Today, it can be said that the economy is showing some “green shoots” amid so much weeds and depression. Real wages have started to rise, industrial activity is rebounding after months of decline, and credit has resumed its upward trajectory. In addition, Argentine confidence remains at positive levels.
The goal is to raise 40 billion
Figures shared with the IMF suggest the government expects it to report approximately $40 billion in property and other assets. They hope that a significant portion of this money will enter the Argentine financial system and that the Treasury will collect $1.5 billion in taxes, a substantial aid for a country that is in the midst of the difficult process of balancing public accounts. Until now, most of the budget balance achieved was based on cuts in public spending, which depressed the economy in the first part of the year. In addition, the reduction of the PAYS tax (although necessary to combat inflation and increase competition) on imports threatens to put a further brake on reserve accumulation and tax collection.
THE Dollar deposits in Argentine banks are an indicator of interest in the amnestysince those who declare dollars in cash must deposit them, while those who declare large sums in overseas accounts or other significant assets must deposit money to pay the “fines.”
After the growth in dollar deposits, “it seems that the government’s goal of $40 billion is achievable,” says Salvador Vitelli, research director at the Romano Group consultancy. “That would be a significant amount for the Argentine economy,” the expert told the Financial Times.
Argentine governments have granted tax amnesties every four years on average over the past two decades, as tax evasion has worsened in the face of tight currency controls and tax increases. The problem is that after each amnesty, a government comes along and retaliates against the capital of the amnestied.
A generous amnesty
But this time it looks different, given the high level of support Milei enjoys in Argentina and the foundations being laid for the future. Several factors will drive participation, says César Litvin, executive director of tax consultancy Lisicki, Litvin and Associates. A long-awaited information-sharing plan with U.S. banks will go into effect this month, automatically informing Argentina’s tax authorities about the accounts its citizens have in the country. Argentina adopted a similar agreement with dozens of other countries in 2017.
If they are detected outside the amnesty framework, Owners of undeclared accounts will be charged back taxes, interest and penalties.s. In the meantime, the terms of the amnesty are generous. Argentines can declare up to $100,000 in assets tax-free and will pay a one-time penalty of 5% on the highest amounts declared before September 30, rising to 10% for those declared between that date and December 31.
They can also choose to prepay wealth tax on their newly declared assets for the next five years at a lower rate and lock in the rate they will pay until 2038. “It’s very cheap compared to other amnestiesand the element of fiscal stability is very attractive given the history of (political) ups and downs,” Litvin says.
