Milei Wants Argentines to Dollarize the Economy for Him

[A Antares]

Does anyone in the forum need to come up with these ideas? Wouldn’t that be the task of the government?

What are the steps being taken by the government?

“to reduce inflation, replenish foreign reserves, lower unemployment and increase GDP”

Do please tell us. So far it’s maybe 1 out of 4

"Do please tell us. So far it’s maybe 1 out of 4"

That was not my question. Nor am I defending or advocating for Milei.

Criticism for the sake of argument is meaningless. Constructive criticism implies that the critic has a better idea, or approach, to a problem. I asked Quilombo, given her criticism of Milei, specifically what she would do, differently than Milei, to improve the Argentine economy.

 

[Ries]

Its obvious that to actually fix the economy, the first step is tax reform.
The current government income from taxes actually collected (as opposed to nominal taxes that exist on the books but no one pays)
is extremely weird, and regressive.
currently the big majority of government income comes from three types of taxes-
1- IVA (currently double that of Japan, triple Canada, and higher than most of South America)
extremely regressive.
2- employment taxes on workers and employers
also very regressive
3- weird tax on the export of a very small basket of agricultural products

almost nobody in Argentina pays personal income tax- an estimated 80,000 or so people in total.
contrast that with the USA, where 43% of all government income is personal income taxes.
corporate taxes are also very low here as a percentage of GDP.
there are no property taxes to speak of here- certainly, if you compare the city of buenos aires, with, say NYC, which gets 44% of its total revenue from property taxes. Here, I dont evey qualify to pay the bienes for my apartment, based on the value, and my ABL tax is equivalent to what I pay in the USA for garbage collection, but it covers also street cleaning and street tree maintenance.


so- currently, the rich dont pay much, the lower 75% pay close to half of all the taxes, and while small businesses have many taxes on the books, total business tax income is very small compared to most similar sized economies.

There is no tax treaty with the USA, which is for one main reason- so rich argentines can shelter wealth tax free in the USA.

A more progressive and modern tax system could keep the total percentage of taxes per gdp at a similar level, but tax the people with money, not the poor. Currently Argentina is NOT a high tax nation- total tax burden is around 29%, about equal with the USA or Australia, well below most of europe, about in the middle of the pack globally.
Its who pays the taxes that makes the difference.

Secondly, we need a national industrial policy, which of course is hand in hand with tax reform. Rather than cutting all tariffs and all taxes, you target taxes, tariffs, and government support to create value added products and services which can earn dollars thru exports. Argentina is well situated to export, with a steel industry, auto factories, a decent sized industrial manufacturing base (ag equipment, appliances, tools, electrical equipment like transformers, food production equipment, clothing and shoe industries, and a lot more)
But the government instead thinks that lithium mines and opening exploration to multinational oil companies is the way to go.
Observe the success of South Korea, Vietnam, Taiwan, and even Mexico, in terms of factories and exports, vs the situation of places like Venezuela, or Nigeria, or even Russia, which put all their eggs in the basket of deals with big oil...

obviously, reform of import and export infrastructure, taxes, and beauracracy would be needed too, but targeted and strategic to support high income jobs here, and encourage exports.

none of this is rocket science- all these policies are in effect, successfully, in dozens of countries around the world.

 

[Quilombo]

Yes, dollarization of an economy the size of Argentina's is impractical, if not outright delusional.

In contrast to Milei, whom you abhor, what then is your alternative solution to resuscitating Argentina's economy? What specific steps would you take to reduce inflation, replenish foreign reserves, lower unemployment and increase GDP; all the while remaining solvent by servicing the debt burden?

"Do please tell us. So far it’s maybe 1 out of 4"

That was not my question. Nor am I defending or advocating for Milei.

Criticism for the sake of argument is meaningless. Constructive criticism implies that the critic has a better idea, or approach, to a problem. I asked Quilombo, given her criticism of Milei, specifically what she would do, differently than Milei, to improve the Argentine economy.

I'm a he for what it's worth, and I agree w/ @FrankPintor and @Ries , we didn't run for president, Milei did. That being said, I'll share some of my ideas:

• Agree with basically everything Ries said about how punitive and regressive taxes are here on average people. We should be taxing rich people, not the working poor. Sergio Berni owns more than a dozen properties (need a forensic accountant on that IMO) yet someone who rents will likely pay more taxes than he does, despite the huge patrimony of real estate wealth.
• I agree with Milei about selling Aerolineas Argentinas; we already have another state airline, LADE, which can operate what the USDOT calls Essential Air Services to remote parts of the country commercial airlines don't want to/can't after selling Aerolineas.
• Interest rates need to be positive but not usurious. For example, inter-annual inflation is 101%, but some banks offer credit below this still, while others offer it at double. Less should be prohibited except for mortgages or vehicle financing if we're serious about lowering inflation, and plaza fijos should be much higher (average is between 30% and 40%). We want consumption, but it needs to be balanced against inflation until it's at least under 10%.
• The peso is way overvalued due to Milei and Caputo's manipulation. Companies will not invest in Argentina, Argentine companies can't compete, and Argentine consumers will continue to shop abroad when the peso is overvalued. The cepo needs to be eliminated ASAP, and once a period of stability returns after a market determined exchange rate, the BCRA can adopt a crawling peg where if the peso doesn't depreciate in line with inflation, it will intervene, i.e. if inflation is 4% next month, the BCRA will only intervene should the depreciation be less than 4%, this way Argentina remains competitive. Once inflation is under 10% a year the peso should be fully floated
• I'd eliminate the Army, Air Force, Navy, and SIDE. We're blessed to have the neighbors we do, and the Gendarmes can handle border enforcement with the PNA. The PFA can take over SIDE's operations.
• We should foster relationships outside of the IMF and World Bank for funding. If China, India, and Russia can offer better deals why don't we play them against the US and Europe for our benefit?
• Prohibit Milei from traveling abroad for the rest of his term. He's already spent way too much money on his overseas sightseeing, he can cry with Rabbis on Zoom, no hay plata, remember?

 

[Ries]

I'm a he for what it's worth, and I agree w/ @FrankPintor and @Ries , we didn't run for president, Milei did. That being said, I'll share some of my ideas:

• Agree with basically everything Ries said about how punitive and regressive taxes are here on average people. We should be taxing rich people, not the working poor. Sergio Berni owns more than a dozen properties (need a forensic accountant on that IMO) yet someone who rents will likely pay more taxes than he does, despite the huge patrimony of real estate wealth.
• I agree with Milei about selling Aerolineas Argentinas; we already have another state airline, LADE, which can operate what the USDOT calls Essential Air Services to remote parts of the country commercial airlines don't want to/can't after selling Aerolineas.
• Interest rates need to be positive but not usurious. For example, inter-annual inflation is 101%, but some banks offer credit below this still, while others offer it at double. Less should be prohibited except for mortgages or vehicle financing if we're serious about lowering inflation, and plaza fijos should be much higher (average is between 30% and 40%). We want consumption, but it needs to be balanced against inflation until it's at least under 10%.
• The peso is way overvalued due to Milei and Caputo's manipulation. Companies will not invest in Argentina, Argentine companies can't compete, and Argentine consumers will continue to shop abroad when the peso is overvalued. The cepo needs to be eliminated ASAP, and once a period of stability returns after a market determined exchange rate, the BCRA can adopt a crawling peg where if the peso doesn't depreciate in line with inflation, it will intervene, i.e. if inflation is 4% next month, the BCRA will only intervene should the depreciation be less than 4%, this way Argentina remains competitive. Once inflation is under 10% a year the peso should be fully floated
• I'd eliminate the Army, Air Force, Navy, and SIDE. We're blessed to have the neighbors we do, and the Gendarmes can handle border enforcement with the PNA. The PFA can take over SIDE's operations.
• We should foster relationships outside of the IMF and World Bank for funding. If China, India, and Russia can offer better deals why don't we play them against the US and Europe for our benefit?
• Prohibit Milei from traveling abroad for the rest of his term. He's already spent way too much money on his overseas sightseeing, he can cry with Rabbis on Zoom, no hay plata, remember?

I agree with almost all of this- except- the Chinese are usurious lenders who have ended up screwing a lot of third world countries. They insist on using Chinese companies to build the facilities they are investing in, and repatriate profits at a very rapid clip.
And the Russians are broke and getting broker. No loans there, and nowadays they arent even selling weapons cheap anymore, as they dont have any extras...
I am unaware of India doing much foreign investment, beyond its car companies, and we already have major factories of Ford, Toyota, GM, Stellantis, VW, and Renault. India is much more focused on internal development than external investment. I mean, they buy apartments in NYC, and they invest in mines in Australia, but they are not going to build a new Jaguar factory here.

 

[ArgentinaVet]

Its obvious that to actually fix the economy, the first step is tax reform.
The current government income from taxes actually collected (as opposed to nominal taxes that exist on the books but no one pays)
is extremely weird, and regressive.
currently the big majority of government income comes from three types of taxes-
1- IVA (currently double that of Japan, triple Canada, and higher than most of South America)
extremely regressive.
2- employment taxes on workers and employers
also very regressive
3- weird tax on the export of a very small basket of agricultural products

almost nobody in Argentina pays personal income tax- an estimated 80,000 or so people in total.
contrast that with the USA, where 43% of all government income is personal income taxes.
corporate taxes are also very low here as a percentage of GDP.
there are no property taxes to speak of here- certainly, if you compare the city of buenos aires, with, say NYC, which gets 44% of its total revenue from property taxes. Here, I dont evey qualify to pay the bienes for my apartment, based on the value, and my ABL tax is equivalent to what I pay in the USA for garbage collection, but it covers also street cleaning and street tree maintenance.


so- currently, the rich dont pay much, the lower 75% pay close to half of all the taxes, and while small businesses have many taxes on the books, total business tax income is very small compared to most similar sized economies.

There is no tax treaty with the USA, which is for one main reason- so rich argentines can shelter wealth tax free in the USA.

A more progressive and modern tax system could keep the total percentage of taxes per gdp at a similar level, but tax the people with money, not the poor. Currently Argentina is NOT a high tax nation- total tax burden is around 29%, about equal with the USA or Australia, well below most of europe, about in the middle of the pack globally.
Its who pays the taxes that makes the difference.

Secondly, we need a national industrial policy, which of course is hand in hand with tax reform. Rather than cutting all tariffs and all taxes, you target taxes, tariffs, and government support to create value added products and services which can earn dollars thru exports. Argentina is well situated to export, with a steel industry, auto factories, a decent sized industrial manufacturing base (ag equipment, appliances, tools, electrical equipment like transformers, food production equipment, clothing and shoe industries, and a lot more)
But the government instead thinks that lithium mines and opening exploration to multinational oil companies is the way to go.
Observe the success of South Korea, Vietnam, Taiwan, and even Mexico, in terms of factories and exports, vs the situation of places like Venezuela, or Nigeria, or even Russia, which put all their eggs in the basket of deals with big oil...

obviously, reform of import and export infrastructure, taxes, and beauracracy would be needed too, but targeted and strategic to support high income jobs here, and encourage exports.

none of this is rocket science- all these policies are in effect, successfully, in dozens of countries around the world.

ABL is in fact a property tax, at least in the City of Buenos Aires. It is literally a tax assessed on real property; currently I pay about $2400 USD per year per property in ABL which is not insignificant.

 

[Ries]

ABL is in fact a property tax, at least in the City of Buenos Aires. It is literally a tax assessed on real property; currently I pay about $2400 USD per year per property in ABL which is not insignificant.

I have been paying ABL for 17 years. It is a tax that pays for street cleaning sewers and garbage. None of it goes to the general fund of the city. Certainly there is no comparison to actual property tax in a place like NYC, which, again, makes up over 40% of the cities revenue. Abl here is usually much less than the rate you would pay in the US, and in the USA I pay sewer costs and garbage costs on top of property tax. My ABL is much less than yours, but appraised value is based on original purchase price, and so my base price is in 2007 pesos. Again, we need tax reform.

 

[FrankPintor]

I'm a he for what it's worth, and I agree w/ @FrankPintor and @Ries , we didn't run for president, Milei did. That being said, I'll share some of my ideas:

• Agree with basically everything Ries said about how punitive and regressive taxes are here on average people. We should be taxing rich people, not the working poor. Sergio Berni owns more than a dozen properties (need a forensic accountant on that IMO) yet someone who rents will likely pay more taxes than he does, despite the huge patrimony of real estate wealth.
• I agree with Milei about selling Aerolineas Argentinas; we already have another state airline, LADE, which can operate what the USDOT calls Essential Air Services to remote parts of the country commercial airlines don't want to/can't after selling Aerolineas.
• Interest rates need to be positive but not usurious. For example, inter-annual inflation is 101%, but some banks offer credit below this still, while others offer it at double. Less should be prohibited except for mortgages or vehicle financing if we're serious about lowering inflation, and plaza fijos should be much higher (average is between 30% and 40%). We want consumption, but it needs to be balanced against inflation until it's at least under 10%.
• The peso is way overvalued due to Milei and Caputo's manipulation. Companies will not invest in Argentina, Argentine companies can't compete, and Argentine consumers will continue to shop abroad when the peso is overvalued. The cepo needs to be eliminated ASAP, and once a period of stability returns after a market determined exchange rate, the BCRA can adopt a crawling peg where if the peso doesn't depreciate in line with inflation, it will intervene, i.e. if inflation is 4% next month, the BCRA will only intervene should the depreciation be less than 4%, this way Argentina remains competitive. Once inflation is under 10% a year the peso should be fully floated
• I'd eliminate the Army, Air Force, Navy, and SIDE. We're blessed to have the neighbors we do, and the Gendarmes can handle border enforcement with the PNA. The PFA can take over SIDE's operations.
• We should foster relationships outside of the IMF and World Bank for funding. If China, India, and Russia can offer better deals why don't we play them against the US and Europe for our benefit?
• Prohibit Milei from traveling abroad for the rest of his term. He's already spent way too much money on his overseas sightseeing, he can cry with Rabbis on Zoom, no hay plata, remember?

I want to take up the topic of investment, specifically state investment. A fundamental truth of investment is that nobody will invest in your project, unless you do. And this is where we're at, Milei isn't investing.

Applying the chainsaw to public works has consequences: we're looking at power cuts this summer because Milei cancelled all the investment in the electricity network, even projects that were already funded (for ideological reasons, of course, though he's now part way through a backflip somersault to cosy up to China again). Furthermore, there is a horizon of 10 years, at most, to get revenue from Vaca Muerta and from the lithium reserves. Why?

The move to electric cars should be largely completed by 2035. No more internal combustion.
And lithium battery recycling is improving, also by 2035 there will little or no need to extract more raw lithium.

Those aren't my opinions, they're the opinions of The Economist. Investment, both public and private, needs to be flooding into both of those areas, and the reversal of the gas duct to Bolivia and Brazil, as well as recovering the gas duct to Chile, should be going ahead at full speed. Lithium refining should be pushed hard, shipping rocks or salt out of the country adds no value.

Sucking up to Elon Musk has resulted in nothing so far, perhaps nothing will ever come (except for photo opportunities) given how Elon has destroyed USD 40 billion in value at the network formerly known as Twitter, and is currently going off the rails faster than one of his cyber-trucks rusts.

As @Quilombo says, I didn't stand for election, Milei did, and I expect him not just to have ideas, but to deliver them too. Complaining is a valid response to his media-show, if enough people complain, he will be departing in a helicopter. We don't have to know what to do, to know that what is being done is pretty bad.


PS: and yes, please cancel his foreign travel

 

[Redpossum]

Those aren't my opinions, they're the opinions of The Economist. Investment, both public and private, needs to be flooding into both of those areas, and the reversal of the gas duct to Bolivia and Brazil, as well as recovering the gas duct to Chile, should be going ahead at full speed. Lithium refining should be pushed hard, shipping rocks or salt out of the country adds no value.

PS: and yes, please cancel his foreign travel

The problem here is that lithium refining generates large amounts of incredibly nasty toxic waste as a by-product. It is a truly vile process. Argentina is already suffering enough of this "pollution by foreign investment" from the gold extraction operations by foreign controlled entities. This is not their country, and they don't give a shit. We, on the other hand, live here.

Apologies for nitpicking. I agree with the rest of what you say. But electric cars are a dead-end, and lithium refining is poison.

 

[ArgentinaVet]

I have been paying ABL for 17 years. It is a tax that pays for street cleaning sewers and garbage. None of it goes to the general fund of the city. Certainly there is no comparison to actual property tax in a place like NYC, which, again, makes up over 40% of the cities revenue. Abl here is usually much less than the rate you would pay in the US, and in the USA I pay sewer costs and garbage costs on top of property tax. My ABL is much less than yours, but appraised value is based on original purchase price, and so my base price is in 2007 pesos. Again, we need tax reform.

At some point the tax became known as Inmobiliario/ABL and is actually broken down on the bill into part that is a direct property tax and part that goes to pay for street sweeping, hygiene and street lights. The combined tax represents about 4.6% of the CABA government tax revenue.

 

[gracielle]

There is no tax treaty with the USA, which is for one main reason- so rich argentines can shelter wealth tax free in the USA.

There is a tax treaty with the USA. See my thread: USA Govt to disclose Argentinian US bank account holders
1 Oct 2024

La AFIP recibió datos de unas 145.000 cuentas de argentinos en EEUU: controles para el blanqueo y detalles del intercambio

Con esa información, el Gobierno reforzará los controles fiscales para mejorar la recaudación tributaria. Incluye datos de cuentas en el sistema financiero existentes en el período fiscal 2023

www.infobae.com

....During September, the AFIP received information on approximately 145,000 accounts in the name of Argentine tax residents. Most of them are individuals in the U.S. banking system. It has a cut-off date from Jan 1-Dec 31, 2023. This is because the IGA 1 model agreement was not retroactive to previous years. With this information, the Gov't will expand the search for contributors who may participate in the "blanqueo de capitales". The exchange of information is being carried out under the framework of the Foreign Account Tax Compliance Act (FATCA), an international agreement aimed at combating tax evasion through the detection of undeclared assets abroad. This agreement was activated by Sergio Massa when he was head of the Ministry of Economy....