What Would Dollarization Mean for Expats?

[Quilombo]

The look on Marra and Santoro's faces was priceless: Melconian concisely explains why the dollarization scheme is a fantasy by Milei and LLA as the BCRA has negative foreign reserves. "We're not going to dollarize at $730 pesos or infinity pesos, there are negative reserves and where are we supposed to get $45 Billion dollars from, Santa Claus?"

While I don't support Bullrich, I appreciate Melconian calling out Milei's bullshit, there's been too much discussion of why dollarization it's a bad idea from the Ks as opposed to the fact that it's simply infeasible.

 

[FrankPintor]

View attachment 9032 View attachment 9033

The look on Marra and Santoro's faces was priceless: Melconian concisely explains why the dollarization scheme is a fantasy by Milei and LLA as the BCRA has negative foreign reserves. "We're not going to dollarize at $730 pesos or infinity pesos, there are negative reserves and where are we supposed to get $45 Billion dollars from, Santa Claus?"

While I don't support Bullrich, I appreciate Melconian calling out Milei's bullshit, there's been too much discussion of why dollarization it's a bad idea from the Ks as opposed to the fact that it's simply infeasible.

I guess that's why he wants to get the billions stored under peoples' mattresses, but are you really going to take out your savings and put them in the bank here just because a guy with a bad hairdo said it's safe to do it now?

 

[sts7049]

that's part of rebuilding trust. if you take away all the uncertainty and give them their freedom, why wouldn't people begin doing so?

 

[earlyretirement]

I guess that's why he wants to get the billions stored under peoples' mattresses, but are you really going to take out your savings and put them in the bank here just because a guy with a bad hairdo said it's safe to do it now?

Nope. That's the challenge but remember that Macri got people to do it. Do you know how many BILLIONS came back in the last amnesty? Over $100 BILLION declared and Billions and billions back into the economy. Argentina signed a tax information exchange program in 2016 with the USA and other countries. But nothing has really been done. As I have mentioned in other posts, that will keep getting extended and kicked down the road. They said 2025 but that will probably turn into 2026, and so on.

I know many, many locals that brought back millions of dollars in the last amnesty. But you know what? They didn't bring it all. I can guarantee you that only a fraction of the declared assets outside of Argentina got declared the last go around. My estimate is probably about 25%.

Milei's advisors are on the right track. It's the game plan I had mentioned before. You push for a gradual increase and flow of those funds back. You play nice guy and say how you want to help these people. Offer NO taxes or penalties and promise of no prosecution. You make this the last time and the one and only opportunity and you have HARSH penalties including and up to losing the entire amount if it's cash or securities held offshore and not declared. Also, stiff jail sentences.

Then you actually push forward with these tax information exchange programs, especially in the USA and EU. Many, many Argentines have EU passports and have accounts there. So you just play up that angle with pushing forward with prosecution for offenders. But it's important to play nice guy first and assurances that no penalties and a nationalistic "come on, do it for yourself but do it for your country".

You make the incoming cash conditional of NO taxes if they invest that cash into real estate or businesses INSIDE Argentina. I realize people will have trust issues, but if they fear losing ALL their cash in seizures anyway then they will gradually do it. They already have the tax information exchange agreements in place so they just push forward. Now with technology, this is fairly easy to accomplish. It's not rocket science and can easily be done. I could have my software engineers do it. They already have created software for governmental agencies and municipalities and voting systems for cities.

So you have all this cash coming into Argentina being put to work. It would spur the real estate market again and you will see tons of activity. People have had this cash trapped outside of Argentina and most of this money isn't in high interest bearing accounts or high yield accounts. This cash could be put to use on cash flow with rentals. It will kill two birds with one stone because there are 0 rentals in Buenos Aires now as the laws are broken.

So you fix the long term rental laws as well once you win, Milei. You get all that cash coming in and people can buy real estate that will yield decent results. Real estate prices are relatively low right now with inflation adjusted dollars. So you create a huge amount of new rentals for long term market and maybe you give some tax incentive or incentive if the people bringing in money turns it into a long-term rental within 12 months.

I mean this is just one idea but you get the idea. The way you solve things is you work backwards which it sounds like last least Milei going from blowing shit up to thinking things through a bit and getting adults in the room.

 

[FrankPintor]

Nope. That's the challenge but remember that Macri got people to do it. Do you know how many BILLIONS came back in the last amnesty? Over $100 BILLION declared and Billions and billions back into the economy. Argentina signed a tax information exchange program in 2016 with the USA and other countries. But nothing has really been done. As I have mentioned in other posts, that will keep getting extended and kicked down the road. They said 2025 but that will probably turn into 2026, and so on.

I know many, many locals that brought back millions of dollars in the last amnesty. But you know what? They didn't bring it all. I can guarantee you that only a fraction of the declared assets outside of Argentina got declared the last go around. My estimate is probably about 25%.

Milei's advisors are on the right track. It's the game plan I had mentioned before. You push for a gradual increase and flow of those funds back. You play nice guy and say how you want to help these people. Offer NO taxes or penalties and promise of no prosecution. You make this the last time and the one and only opportunity and you have HARSH penalties including and up to losing the entire amount if it's cash or securities held offshore and not declared. Also, stiff jail sentences.

Then you actually push forward with these tax information exchange programs, especially in the USA and EU. Many, many Argentines have EU passports and have accounts there. So you just play up that angle with pushing forward with prosecution for offenders. But it's important to play nice guy first and assurances that no penalties and a nationalistic "come on, do it for yourself but do it for your country".

You make the incoming cash conditional of NO taxes if they invest that cash into real estate or businesses INSIDE Argentina. I realize people will have trust issues, but if they fear losing ALL their cash in seizures anyway then they will gradually do it. They already have the tax information exchange agreements in place so they just push forward. Now with technology, this is fairly easy to accomplish. It's not rocket science and can easily be done. I could have my software engineers do it. They already have created software for governmental agencies and municipalities and voting systems for cities.

So you have all this cash coming into Argentina being put to work. It would spur the real estate market again and you will see tons of activity. People have had this cash trapped outside of Argentina and most of this money isn't in high interest bearing accounts or high yield accounts. This cash could be put to use on cash flow with rentals. It will kill two birds with one stone because there are 0 rentals in Buenos Aires now as the laws are broken.

So you fix the long term rental laws as well once you win, Milei. You get all that cash coming in and people can buy real estate that will yield decent results. Real estate prices are relatively low right now with inflation adjusted dollars. So you create a huge amount of new rentals for long term market and maybe you give some tax incentive or incentive if the people bringing in money turns it into a long-term rental within 12 months.

I mean this is just one idea but you get the idea. The way you solve things is you work backwards which it sounds like last least Milei going from blowing shit up to thinking things through a bit and getting adults in the room.

Thanks for your lengthy response, I'm very interested in understanding this topic. I don't actually remember the Macri tax amnesty, since I arrived in Argentina in late 2017, so I did what any engineer would do, and I started searching. I came up with this, I don't know if you'd consider it a credible analysis (and I'm impressed that Argentina's tax policies provide so much fodder for academics to chew over), but at first sight it does seem to be a serious heavyweight publication: https://shs.hal.science/halshs-04103653/document

I'm still reading it, but right at the start it sets the context, saying "Argentines today [2022] report that nearly one-half of all their assets are offshore". and it does eulogise the Macri amnesty program, saying "We leverage rich policy variation from Argentina, which implemented the world’s most successful program".

This, however, is the critical paragraph: we "find suggestive evidence that Argentine taxpayers do not repatriate their offshore assets, despite sizable tax incentives for repatriation. First, we find little evidence that repatriation clauses, often included in tax amnesties, entice evaders to bring capital back into the country. Instead, most Argentine evaders chose to pay heavier taxes and keep their assets abroad. The lack of repatriation response is surprising in light of Argentina’s recent move to impose higher taxes on foreign assets. These results suggest that tax incentives do not explain why Argentines have offshore assets. Instead, we posit that wealthy Argentines keep their wealth abroad to insure themselves against economic volatility, currency controls, high exchange rate fluctuations, and inflation spells, and to obtain higher returns".

And they go on to quantify how much actually came back: "Participants revealed assets worth US$117 billion, representing 21% of Argentina’s GDP in 2016. The success of Argentina’s amnesty surprised even the authorities themselves. [...] The penalties raised US$9.5 billion in revenue equivalent to 1.8% of GDP (AFIP, 2017). These numbers suggest that Argentina’s 2016 amnesty program is one of the world’s most successful tax amnesties in the sheer value of the amount disclosed and the revenue collected from penalties".

USD 9.5 billion is certainly "billions and billions" from where I'm standing but nowhere near enough to finance a dollarization program. Argentinians just preferred to pay higher taxes, legitimise their foreign assets, and keep them out of the Argentinian banking system. Somebody needs to think again...

 

[ArgentinaVet]

So you have all this cash coming into Argentina being put to work. It would spur the real estate market again and you will see tons of activity. People have had this cash trapped outside of Argentina and most of this money isn't in high interest bearing accounts or high yield accounts. This cash could be put to use on cash flow with rentals. It will kill two birds with one stone because there are 0 rentals in Buenos Aires now as the laws are broken.

So you fix the long term rental laws as well once you win, Milei. You get all that cash coming in and people can buy real estate that will yield decent results. Real estate prices are relatively low right now with inflation adjusted dollars. So you create a huge amount of new rentals for long term market and maybe you give some tax incentive or incentive if the people bringing in money turns it into a long-term rental within 12 months.

There is something I think many people do not fully appreciate: the USD cash (physical paper currency) is already INSIDE Argentina's borders in safe deposit boxes, under the mattress and in home safes. Argentina has the second highest amount of physical USD currency in the hands of the private sector of any country outside the United States (Russia is number one). This is the money that is sitting around not getting any sort of return that the dollarization program has a fair change of convincing to enter the economy. Argentines that own productive assets outside the country are much less likely to liquidate them in order to repatriate them in my opinion.

 

[earlyretirement]

Thanks for your lengthy response, I'm very interested in understanding this topic. I don't actually remember the Macri tax amnesty, since I arrived in Argentina in late 2017, so I did what any engineer would do, and I started searching. I came up with this, I don't know if you'd consider it a credible analysis (and I'm impressed that Argentina's tax policies provide so much fodder for academics to chew over), but at first sight it does seem to be a serious heavyweight publication: https://shs.hal.science/halshs-04103653/document

I'm still reading it, but right at the start it sets the context, saying "Argentines today [2022] report that nearly one-half of all their assets are offshore". and it does eulogise the Macri amnesty program, saying "We leverage rich policy variation from Argentina, which implemented the world’s most successful program".

This, however, is the critical paragraph: we "find suggestive evidence that Argentine taxpayers do not repatriate their offshore assets, despite sizable tax incentives for repatriation. First, we find little evidence that repatriation clauses, often included in tax amnesties, entice evaders to bring capital back into the country. Instead, most Argentine evaders chose to pay heavier taxes and keep their assets abroad. The lack of repatriation response is surprising in light of Argentina’s recent move to impose higher taxes on foreign assets. These results suggest that tax incentives do not explain why Argentines have offshore assets. Instead, we posit that wealthy Argentines keep their wealth abroad to insure themselves against economic volatility, currency controls, high exchange rate fluctuations, and inflation spells, and to obtain higher returns".

And they go on to quantify how much actually came back: "Participants revealed assets worth US$117 billion, representing 21% of Argentina’s GDP in 2016. The success of Argentina’s amnesty surprised even the authorities themselves. [...] The penalties raised US$9.5 billion in revenue equivalent to 1.8% of GDP (AFIP, 2017). These numbers suggest that Argentina’s 2016 amnesty program is one of the world’s most successful tax amnesties in the sheer value of the amount disclosed and the revenue collected from penalties".

USD 9.5 billion is certainly "billions and billions" from where I'm standing but nowhere near enough to finance a dollarization program. Argentinians just preferred to pay higher taxes, legitimise their foreign assets, and keep them out of the Argentinian banking system. Somebody needs to think again...

You're welcome. Yeah the last amnesty was very popular. The numbers are actually higher than what you're seeing in that last published report. I have some friends that work in the government. That's a staggering amount of money.

Here is the issue that many that don't know Argentina don't quite understand. Do you know why all of these people aren't that scared? Because it's all the status quo that has THEIR funds outside of Argentina. All the politicians, businessmen, elite. AND ALL their friends. That's why you never see these enforcement policies enforced between the USA. Do you think all of these people want to enforce it on themselves???? Nope. On their friends? Nope.

With Milei it changes all that. The guy that threatens to "blow the system up". Do you think he will have any issues throwing all of these people in jail or confiscating their funds? No. He wouldn't. Sure, he will know many friends that fall into this category but if he is serious about systemic change he needs to do that. Follow my advice.

If you have a President that is serious about this and threatens to publicly post about all of these people with accounts abroad and makes life hell for them. Do you think they won't bring it back in? Yes, I get what you're saying about people choosing to pay X% penalty not to Bring it here. But I'd guess the majority of it isn't declared and never was. You have to have strong penalties this time if they don't report it. And increase the taxes and penalties if they don't want to repatriate it.

See with Milei it's the first time a country like Argentina has had someone like this. That's why it's so exciting for many of the younger generation. Most of them know it's impossible to truly change things within Argentina without someone like this that is willing to shake things up. My guess is the guy probably gets assassinated if he wins which would be a shame. The status quo hates guys like this. Also, other leaders in the rest of South America if he wins you will see them scared. They know if it can happen in Argentina the shift to the right and center it will probably happen in their country as well. Especially if Argentina is successful.

There is something I think many people do not fully appreciate: the USD cash (physical paper currency) is already INSIDE Argentina's borders in safe deposit boxes, under the mattress and in home safes. Argentina has the second highest amount of physical USD currency in the hands of the private sector of any country outside the United States (Russia is number one). This is the money that is sitting around not getting any sort of return that the dollarization program has a fair change of convincing to enter the economy. Argentines that own productive assets outside the country are much less likely to liquidate them in order to repatriate them in my opinion.

Yes, exactly. So when I lived in Argentina I had to go to my safe deposit box all the time for my company as well as myself. Do the research. There are thieves that have dug under banks just to break into the vaults where they steal massive amounts of cash. There are BILLIONS of dollars already inside Argentina. But you have to have some vehicle to get people to get these funds out of the shadows and invited in something. You have to give them a reason why they should do this.

But I disagree with you that you say they won't repatriate it. They will if you make penalties and interests and charges for not declaring it for so long. Just make it cumulative % penalties for every year they had it abroad. It's NOT rocket science. It's NOT difficult to track these funds. There is a paper trail for everything these days. Very few people have it sitting in bank vaults or safety deposit boxes abroad. They are sitting in low/no interest accounts as to not draw too much attention. I know tons of people that are in this situation. And they are quaking in their boots!
As I outlined, the reason why people weren't too scared is they know all the politicians and status quo have their funds outside and they never thought anyone would actually do anything that will shoot themselves in the foot. They never accounted for a Milei.

 

[earlyretirement]

Thanks for your lengthy response, I'm very interested in understanding this topic. I don't actually remember the Macri tax amnesty, since I arrived in Argentina in late 2017, so I did what any engineer would do, and I started searching. I came up with this, I don't know if you'd consider it a credible analysis (and I'm impressed that Argentina's tax policies provide so much fodder for academics to chew over), but at first sight it does seem to be a serious heavyweight publication: https://shs.hal.science/halshs-04103653/document

I'm still reading it, but right at the start it sets the context, saying "Argentines today [2022] report that nearly one-half of all their assets are offshore". and it does eulogise the Macri amnesty program, saying "We leverage rich policy variation from Argentina, which implemented the world’s most successful program".

This, however, is the critical paragraph: we "find suggestive evidence that Argentine taxpayers do not repatriate their offshore assets, despite sizable tax incentives for repatriation. First, we find little evidence that repatriation clauses, often included in tax amnesties, entice evaders to bring capital back into the country. Instead, most Argentine evaders chose to pay heavier taxes and keep their assets abroad. The lack of repatriation response is surprising in light of Argentina’s recent move to impose higher taxes on foreign assets. These results suggest that tax incentives do not explain why Argentines have offshore assets. Instead, we posit that wealthy Argentines keep their wealth abroad to insure themselves against economic volatility, currency controls, high exchange rate fluctuations, and inflation spells, and to obtain higher returns".

And they go on to quantify how much actually came back: "Participants revealed assets worth US$117 billion, representing 21% of Argentina’s GDP in 2016. The success of Argentina’s amnesty surprised even the authorities themselves. [...] The penalties raised US$9.5 billion in revenue equivalent to 1.8% of GDP (AFIP, 2017). These numbers suggest that Argentina’s 2016 amnesty program is one of the world’s most successful tax amnesties in the sheer value of the amount disclosed and the revenue collected from penalties".

USD 9.5 billion is certainly "billions and billions" from where I'm standing but nowhere near enough to finance a dollarization program. Argentinians just preferred to pay higher taxes, legitimise their foreign assets, and keep them out of the Argentinian banking system. Somebody needs to think again...

Thanks for posting that article! It was really good and I hadn't seen it before. It was one of the best analytical pieces I've read. I just base things on my own analysis and activities of more than 21+ years living and working and investing in Argentina.

I CAN tell you that whatever the figures and guesstimates all these analysts are throwing out there are just that a GUESS. The true number is going to be much greater than you could imagine. I mean, their numbers are shocking but I'd say take whatever they are guessing and probably add another 25% on top of the biggest estimates.

And I must insist that I'm AGAINST taxes or governments dictating what people can and can't do with THEIR money or where the hold it. But I digress that's another argument for another day. Argentina has to do some big moves here. As mentioned, the last amnesty is wildly successful. I think there's a way you can structure the next one and put more teeth into it, you put more fear into people that hold funds abroad, you give tax incentives for people that are bringing it back but especially all the cash on the sidelines INSIDE Argentina already.

It's going to take some creative thinking to incentivize these people to put their cash to work. My thinking is 0% capital gains taxes on anything they put the funds into for a minimum period of time so they just can't yank it out. They could sell but if it's before that time they would have the normal capital gains taxes. If they wait then 0%. As well, 0% asset taxes for X years or maybe forever on that asset (if it's real estate) to give them a big incentive.

You also have to remember something. Holding cash $$ is a big liability. A HUGE headache. In my office safe at my office, sometimes we would hold up to $3 million in cash for various upcoming purchases. We had break-in attempts and it was VERY stressful. Even having a safe with a foot behind concrete you worry as insurance doesn't cover CASH. So all these people holding cash do have risks. You make the incentive so great that it brings them out from under the shadows. JMHO.

 

[Quilombo]

I guess that's why he wants to get the billions stored under peoples' mattresses, but are you really going to take out your savings and put them in the bank here just because a guy with a bad hairdo said it's safe to do it now?

that's part of rebuilding trust. if you take away all the uncertainty and give them their freedom, why wouldn't people begin doing so?

Is it possible? Sure, do I think it's likely? No.

People already bring/spend what they need from abroad/hide under their mattress for life here, and despite the corralito having been over 20 years ago there are people who still refuse to keep anything more than say 500 USD worth of pesos in the bank at any given time (if they have the money at all). Hell, I think we all know the folks in their 50s/60s/70s/80s who keep all their pesos in cash. The principle reason we've seen digital payments grow is because our largest bills are so small. Mercado Pago was a thing in the Macri era, but it wasn't needed as much since 1,000 pesos got you something back then.

Milei aspires to be a transformative figure, and I don't it's just my bias doubting his ability to do this. He confirmed what we all assumed, he'd like to dollarize at the blue rate, but aside from this weird cap and trade scheme for blanqueando money, which will just help the rich folks, it does nothing solve the 45 Billion Dollar hole in his equations, on top of the fact we're currently struggling to pay the IMF back with a similar sized loan.

I accept that Milei is likely to be the next president, I'm not trying wishcast with these critiques, simply point out that there are fundamental problems with these objectives that fly in the face of reality, and even more so when you need Congress for a bunch of them.

 

[earlyretirement]

Is it possible? Sure, do I think it's likely? No.

People already bring/spend what they need from abroad/hide under their mattress for life here, and despite the corralito having been over 20 years ago there are people who still refuse to keep anything more than say 500 USD worth of pesos in the bank at any given time (if they have the money at all). Hell, I think we all know the folks in their 50s/60s/70s/80s who keep all their pesos in cash. The principle reason we've seen digital payments grow is because our largest bills are so small. Mercado Pago was a thing in the Macri era, but it wasn't needed as much since 1,000 pesos got you something back then.

Milei aspires to be a transformative figure, and I don't it's just my bias doubting his ability to do this. He confirmed what we all assumed, he'd like to dollarize at the blue rate, but aside from this weird cap and trade scheme for blanqueando money, which will just help the rich folks, it does nothing solve the 45 Billion Dollar hole in his equations, on top of the fact we're currently struggling to pay the IMF back with a similar sized loan.

I accept that Milei is likely to be the next president, I'm not trying wishcast with these critiques, simply point out that there are fundamental problems with these objectives that fly in the face of reality, and even more so when you need Congress for a bunch of them.

I don't disagree with you and I'm NOT saying it will be easy. In fact, I've always said no matter WHO is the next president it's going to be a monumental task and will be difficult. NO way I'd ever want this job. But at least he is trying. The status quo isn't going to work. I mean things are pretty shitty right now. What the hell do they have to lose? They might as well try.

I agree it's not going to be easy to get locals to invest but you know what??? There are ZERO rents in Buenos Aires right now on long term rentals. For a city of 3.5 million. This tells you something. The laws are broken. The system is broken. Instead of the Senate admitting they f*cked up they sit around and ask more consultants what they can do. LOL. It's quite comical.

Like I said, come up with a scheme to get people to invest in it. Everyone needs a place to live in Argentina. Those without OWNING their own place are going to be screwed. Something like 120,000 contracts are going to end by the end of the year. There are already virtual NO rentals. What do you think is going to happen? You MUST be an owner in Argentina heading into the future. The ones that are fairly secure are the people that own their own place. The locals that I all know that are surviving this mess are only managing because they bought a secondary small apartment and renting it out in US dollars.

So I will debate with anyone why owning makes sense in Argentina vs. letting your cash sitting under your mattress basically lose you money. With inflation it's going to be worthless anyway. They are making a negative return on this money. All I'm saying is make a really compelling argument why they have to buy.

Having a "they will never do this or never do that" attitude won't solve things. People can post their ideas how they think this mess will get solved. Just bashing Milei won't help so come up with better solutions if you think you have better ideas. JMHO.