Bottom Line: Argentina is hoping to reign in hidden money and redirect it to government coffers with a new “tax amnesty” as the black market exchange rate hits 5.2 pesos per US dollar and foreign currency reserves drop to a six-year low.
Analysis: In mid-May the black market exchange rate in Argentina reached 10 pesos per US$1 dollar at the same time the official exchange rate was 5.2 pesos per dollar. The disparity demonstrates a continued lack confidence in the peso, making for a dire shortage of dollars in Argentina. Aside from ordinary people and businesses who struggle to build up savings in a nation with strict currency controls and inflation estimated at 25 percent a year, the Central Bank is also running low on liquid capital. In April, foreign reserves dropped to below $40 billion for the first time in six years. Meanwhile, the Minister of the Economy Axel Kicillof says Argentines have squirreled away at least $160 billion in undeclared foreign bank accounts.
So President Cristina Fernández de Kirchner presented a law to bring that “hidden money” in from the shadows (whether in Swiss bank accounts or dollars stuffed in their mattress), to government coffers. The tax amnesty or “blanqueo” approved by Parliament on 29 May allows individual and corporate taxpayers in Argentina to legalize their foreign cash without paying any fines or back taxes. There are two vehicles for participants; both are intended to stimulate the economy and both will allegedly maintain the money as a dollar-denominated asset. The Argentine Savings Bond for Economic Development (Bono Argentino de Ahorro para el Desarrollo Económico, or BAADE) will provide national oil company YPF with much-needed capital, and promises investors a 4% annual return, while the Investment Certificate (Certificado de Inversión, or CEDIN) is a Treasury-backed certificate that permits funds to be used for the purchase, construction or remodeling of property. Taxpayers have until 30 September to legalize their undeclared assets, after which Secretary of Domestic Trade Guillermo Moreno promised action directed at those who opt not to take advantage of the amnesty. Speaking to a group of business leaders Moreno said “We have the information on who has money abroad and they will have to bring it…we will check and for anyone who doesn’t, it will be bad.”
Opposition falls into several categories;…