Argentines have withdrawn their dollar savings from homes and deposited them in banks, in a sign of confidence in President Javier Milé and his tax amnesty program.
In a sign of optimism toward Milley, dollar deposits have risen 40 percent to $19.8 billion since taking office on Dec. 10, the highest level since late 2019, according to central bank data. Although Argentines receive their salaries in pesos, bank savings accounts are often in US dollars.
Positive development
These dollar cash flows into the financial system are a positive development for a country that has suffered for years from currency crises due to a lack of foreign reserves. It also brings Milley closer to delivering on one of his key campaign promises to dollarize the economy and peso, though that goal remains elusive in South America’s second-largest economy and the IMF’s largest borrower.
“The tax amnesty will speed up the process of free competition or coexistence between currencies,” Economy Minister Luis Caputo said in a live podcast on August 30, adding that this measure is not for the purpose of collecting taxes.
Deposits have increased by $5.7 billion since Milley took office, with about $1.4 billion flowing in after the tax amnesty program went into effect on July 17. Banks have already opened about 100,000 accounts for tax amnesty purposes, and the total value is expected to reach at least $2 billion, according to sources familiar with the matter.
Read also:Is this cryptocurrency waiting for a price explosion of 5000%?
Extensive package of repairs
The law, approved by Congress as part of a broader economic reform package in late June, allows people to declare up to $100,000 in cash held out of the financial system without paying taxes. A 5% tax will be levied on excess savings, while larger amounts can be declared tax-free if invested in bonds, real estate or other exceptions. The tax amnesty program runs until March 2025, but higher taxes on excess amounts will have to be paid after that.
Sebastian Dominguez, an accountant and tax expert in Buenos Aires, said: “This is a low-cost opportunity for people to buy a car, renovate their homes, or start earning returns on the dollars you hold today in a safety deposit box (DFM:AMANT).”
Although the increase in deposits still makes up a small fraction of the $204 billion in cash in circulation in Argentina, according to a central bank presentation, deposit levels are still well below the peak of around $32.5 billion in August 2019 before falling during election fluctuations. Holding dollars in cash, whether in safety deposit boxes, at home or in offshore bank accounts, is a common practice in Argentina due to recurrent financial crises and high taxes.
Although this phenomenon strengthens the central bank’s overall reserves, its liabilities remain greater than its assets. Net reserves are at negative levels of nearly $6 billion, according to local brokerage PPI.
What stock should you buy in your next trade?
With stock valuations soaring in 2024, many investors feel uncomfortable investing more money in stocks. Not sure where to invest your money now? View our proven portfolios and discover opportunities
