Argentina’s lower house of congress
is debating today legislation that pardons tax dodgers who
invest undeclared funds in either the construction industry or
in bonds to finance increased oil and gas production.
While the government says the amnesty aims to bring part of
the $160 billion hidden from the authorities into the legal
economy, opposition lawmakers say the offer is a carte blanche
for drug dealers and other criminals to launder money.
“We are embarking on the path of a narco economy,” said
opposition Senator Liliana Negre de Alonso in a telephone
interview, before the start of today’s debate. “It’s totally
immoral. The government doesn’t care about the means to reach
its goal -- raise more investment.”
The bill, which will probably be passed by President
Cristina Fernandez de Kirchner’s majority coalition tonight,
reflects her need for funds to finance YPF SA, the oil producer
she seized a year ago on promises to expand output and reduce
energy imports, said opposition lawmaker Federico Pinedo. The
government seized 51 percent of YPF last year from Spain’s
Repsol SA to stem fuel imports that doubled to $9.4 billion in
2011 and are expected to rise to as much as $15 billion this
year.
The shortage of dollars in the Argentine economy and
Fernandez’s partial ban on their purchase has crushed the real
estate market, almost halving property sales since she started
to tighten currency controls to stem record capital flight in
2011.
Dollar Transactions
Under the amnesty, Argentines with undeclared foreign-currency savings will be able to buy dollar bonds to finance
increased energy production, or a dollar-denominated central
bank certificate that can be used to acquire real estate or
building materials. Real estate deals are traditionally
conducted in the U.S. currency in Argentina.
Those accepting the amnesty won’t have to pay past-due
taxes or explain the origin of the funds. The energy bond pays 4
percent interest and matures in 2016.
The bill was approved by the Senate on May 22.
In 2009, about $4 billion of hidden money was declared to
the authorities under a law that enabled savers to whitewash
funds by paying a tax of as much as 8 percent. According to
deputy Economy Minister Axel Kicillof, Argentines held about
$160 billion in undeclared funds in 2006, of which $120 billion
had been funneled into foreign bank accounts.
Terrorism, Laundering
The Financial Action Task Force, a Paris-based
intergovernmental money laundering watchdog, in February
included Argentina, Zimbabwe, Afghanistan, Cuba and Bolivia in a
list of countries that needed stricter controls and sanctions to
combat money laundering and financing of terrorism.
Although lawmakers from Fernandez’s ruling Victory Front
coalition say they have undertaken measures to comply with all
the FATF requirements, Negre de Alonso said the bill flies in
the face of those demands.
Argentina’s anti money-laundering office and tax agency
will maintain policies of reporting any suspicious funds,
Victory Front Senator Anibal Fernandez said during the May 22
debate.
“Investigations will be made into what people who bring
back funds do for a living,” Senator Fernandez said. “The
Financial Information Center and the tax agency have a control
system that will be very difficult to avoid.”
Repaid Dollars
The government has pledged that those who hand over dollars
in exchange for the bonds will be repaid in greenbacks when they
mature.
Real estate purchases in Buenos Aires fell 48 percent in
the first quarter of this year from the same period two years
earlier, according to the capital’s college of public notaries.
Construction activity has contracted in 11 of the 12 months to
March, government data show.
“The plan doesn’t have a goal of increasing tax revenue or
boost central bank reserves,” central bank President Mercedes Marco del Pont said on May 7.
Concerned that 24 percent annual inflation, a widening
budget deficit and declining central bank reserves would force
the government to devalue the peso, Argentines took $21.5
billion out of South America’s second-biggest economy in 2011.
Within days of her re-election in October that year,
Fernandez started to tighten currency controls, including limits
on dividend remittances abroad, taxes on foreign use of credit
and debit cards and a ban on dollar purchases for savings. While
her measures slowed capital outflows to $3.4 billion in 2012,
central bank reserves, which she uses to pay the nation’s
foreign debt, continued to decline, reaching $38.7 billion on
May 28 from a record $52.6 billion in January 2011.
‘Desperate Move’
The amnesty is “a desperate move by the government in an
attempt to revert a drop in reserves,” said Juan Pablo Fuentes,
an economist at Moody’s Analytics Inc. “They won’t have much
success in bringing back capital because the main problem is the
lack of confidence in the government.”
Argentina’s history of government meddling with savings has
caused many of the country’s 40 million citizens to send money
out of the country, place it in bank safety deposits boxes or
hide it in their homes. Savers are concerned they may see a
repeat of 2002, when then-President Eduardo Duhalde converted
dollar deposits into pesos, which weakened as much as 70 percent
against the U.S. currency that year. In 2008, Fernandez
confiscated about $24 billion held in private pension funds and
handed the money to the national social security agency.
“This bill creates a window for those who took money out
of the country to bring it back,” Carlos Heller, a lawmaker
from the ruling coalition, said in a telephone interview. “It’s
a bill that has a bitter taste because it gives a benefit to
someone who hasn’t followed the law. But this will also help all
of society by getting more investment for energy and
construction.”
To contact the reporter on this story:
Eliana Raszewski in Buenos Aires at
eraszewski@bloomberg.net.
To contact the editor responsible for this story:
Andre Soliani at
asoliani@bloomberg.net.
Argentine President Cristina Fernandez de Kirchner
Juan Mabromata/AFP via Getty Images
The shortage of dollars in the Argentine economy and Argentine President Cristina Fernandez de Kirchner’s partial ban on their purchase has crushed the real estate market, almost halving property sales since she started to tighten currency controls to stem record capital flight in 2011.
The shortage of dollars in the Argentine economy and Argentine President Cristina Fernandez de Kirchner’s partial ban on their purchase has crushed the real estate market, almost halving property sales since she started to tighten currency controls to stem record capital flight in 2011. Photographer: Juan Mabromata/AFP via Getty Images
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