Argentina Tax Amnesty Laundering Free Pass, Opposition Says

Argentine President Cristina Fernandez de Kirchner
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

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.”

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