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Argentines are declaring hundreds of millions of dollars of previously hidden savings in a tax amnesty that libertarian President Javier Milei hopes will boost the country’s moribund economy and scarce foreign exchange reserves.
Private deposits in dollars into Argentina’s banks are accelerating ahead of the scheme’s first-phase deadline on September 30, although data has not yet been released on sums declared specifically under the amnesty since it began in mid-July.
Central bank data shows Argentines made net deposits of $728mn in July and $749mn in August. That was up from a monthly net average of $532mn in the first seven months of Milei’s presidency — and average net withdrawals of $70mn a month in the two years before the radical leader took office in December.
Argentina’s long history of economic turmoil, marked by hyperinflation, currency controls and governments restricting access to savings, has pushed citizens to hold some $258bn in dollars outside its financial system, according to official estimates for early 2024. An unknown portion has not been declared to authorities.
Experts said most Argentines keep savings in dollars — either stuffed under mattresses, in safety deposit boxes, or in accounts in the US and other countries.
The government believes tapping those greenbacks would help solve its two biggest problems: reinvigorating a real economy that has been battered by a long-running crisis and Milei’s austerity measures, and adding to the central bank’s dangerously low hard currency reserves.
“We are at a moment of historic change for Argentina and the amnesty plays a very important role,” said economy minister Luis Caputo late last month. “The aim is not to collect taxes, it’s to relaunch Argentina.”
Numbers shared with the IMF suggest the government expects roughly $40bn in dollars, properties and other assets to be declared. They hope that a significant chunk of the money will enter Argentina’s financial system and that the treasury will collect $1.5bn as taxes.
Dollar deposits in Argentine banks are a proxy for interest in the amnesty, as those declaring cash dollars must deposit them, while those declaring large amounts in overseas accounts or other big assets must deposit some money to pay penalties.
Following the growth in dollar deposits, “it looks like the government’s goal of $40bn is achievable”, said Salvador Vitelli, head of research at consultancy Romano Group. “It would be a significant sum for the Argentine economy.”
Argentine governments have held a tax amnesty every four years on average over the past two decades, as tax evasion worsened in the face of strict currency controls and tax rises. The most successful amnesty was run by conservative president Mauricio Macri in 2016, with $117bn declared.
But financial advisers said some Argentines would be put off joining Milei’s amnesty by the memory of what happened after Macri’s: when the left-leaning Peronist movement returned to power in 2019, it raised the top rate of Argentina’s annual personal wealth tax from 0.25 per cent in 2018 to 1.75 per cent on assets held in Argentina and 2.25 per cent for those held abroad, hitting the recently declared wealth.
But several factors will boost participation, said César Litvin, chief executive of tax advisory firm Lisicki, Litvin and Associates.
This month a long-awaited information-sharing scheme with US banks will come into force, automatically notifying Argentina’s tax agency of accounts held in the country by its citizens. Argentina adopted a similar agreement with dozens of other countries in 2017.
If they are detected outside the amnesty, owners of undeclared accounts face charges for back taxes, interest and fines.
The terms of the amnesty, meanwhile, are generous. Argentines can declare up to $100,000 of assets tax-free and will pay a 5 per cent one-off penalty on sums over that were declared before September 30, rising to 10 per cent for those declared between then and December 31.
They can also opt to pre-pay the wealth tax on their newly declared assets for the next five years at a lower rate and fix the rate they pay until 2038.
“It’s very cheap compared to other amnesties, and the element of fiscal stability is very attractive given the history of [political] swings,” Litvin said.
Argentines will also be exempt from paying tax on sums above $100,000 if they invest in a range of local government and corporate bonds, stocks, and new real estate projects. The latter option is designed to stimulate the construction industry, where activity was down 35 per cent year on year in June after Milei slashed the public works budget.
Caputo said the scheme would “accelerate” the government’s “currency competition” plan, in which pesos and dollars would both be used freely in Argentina. That plan has for now replaced Milei’s controversial campaign pledge to dollarise the economy.
Argentina’s central bank currently holds about $27bn in gross foreign currency reserves, but its “net” reserves — excluding loans from the IMF, China and other lenders and the money deposited by banks to back consumers’ deposits — are almost $3bn in the red, said Vitelli.
The $1.5bn the government hopes to collect in taxes would raise net reserves, while dollars deposited in Argentine banks would increase gross reserves.
That should give the central bank “oxygen” to make day-to-day transactions and intervene in currency markets, boosting market confidence, said Vitelli.
However successful Milei’s amnesty is, it is unlikely to bring all of Argentina’s missing dollars home, said Diego Fraga, a tax lawyer and professor at the country’s Austral University.
Argentines who declare assets in the amnesty could opt to keep them overseas or withdraw them from banks after declaring them, he said.
Meanwhile, loopholes in the US’s information sharing will shield some account holders there, such as those that use legal entities to conceal the beneficiary’s identity.
Fraga added: “You still hear a lot of people saying: ‘I don’t believe Argentina is going to change yet. I’d prefer to keep my money elsewhere.’”