Argentina Tax Dodgers Offset Fines With Country’s Tax-Free Bonds

  • Government started amnesty program for tax evaders Aug. 1
  • Country’s long bonds have soared more than 7% this month

Argentina’s tax evaders who are coming clean are increasingly turning to the bond market to mitigate the sting of penalties. 

The government has started an amnesty program that seeks to convince Argentines who’ve stashed as much as $500 billion abroad to declare their assets and pay taxes. Those who comply by year-end, can buy a bond that pays little to no interest or pay a fine upfront that’s equivalent to 10 percent of the assets declared.

To offset the pain, Argentines are piling into the country’s bonds because they’re exempt from income or personal taxes. Nicolas Chiesa, a trader at Buenos Aires-based brokerage Balanz Capital, says the notes -- especially the longest-dated ones -- may allow Argentines to recover the cost of the tax penalty in less than two years. The surge in buying has helped Argentina’s debt due in 2046 return 7.3 percent since the amnesty began Aug. 1, more than three times the emerging-market average.

“We are getting thousands of inquiries from people who have decided to declare funds,” Chiesa said. “We are telling them to build positions at the longest part of the Argentine yield curve as those are the ones that may compress the most, such as Argentina’s 2046.”

Carlos Aszpis, an analyst at Buenos Aires-based brokerage Schweber Securities SA, said investors may reap returns of 15 percent in a year by snapping up the longer-term bonds.

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