(Bloomberg) — Argentines are pulling their dollar savings out from under their mattresses and depositing them in banks as a show of confidence in President Javier Milei and his tax amnesty program.
Most read from Bloomberg
In a sign of optimism for Milei, dollar deposits have surged 40% to $19.8 billion since he took office on Dec. 10, the highest level since late 2019, according to central bank data. While Argentines are paid in pesos, savings accounts at banks are often denominated in U.S. dollars.
The return of greenbacks to the financial system is a welcome development for a country that has struggled with currency crises over the years due to the lack of foreign reserves in the financial system. It also brings Milei closer to one of his key campaign promises to dollarize the economy, a reality that still seems a long way off in South America’s second-largest economy.
“The amnesty will accelerate the process of free competition, or coexistence, of currencies,” Economy Minister Luis Caputo said during a streamed podcast on Aug. 30. “This is not done for tax purposes.”
Deposits have increased by $5.7 billion since Milei took office — about $1.4 billion of that came after the government’s tax amnesty program took effect on July 17. Banks have already opened about 100,000 accounts for tax amnesty purposes and estimate a minimum of $2 billion for that purpose, according to people with direct knowledge.
The law, passed by Congress in late June as part of a larger package of economic reforms, allows people to give up to $100,000 in cash previously held outside the system without paying any taxes. The excess savings will be taxed at 5%, though larger amounts can also be given away tax-free if they are used to invest in bonds, real estate or other exemptions. Argentines will have until March 2025 to give up their dollars — but will have to pay higher taxes on the excess.
“This is a very cheap opportunity for people to buy a car, renovate their house or generate a return on the dollars that are now sitting in a safe deposit box,” said Sebastian Dominguez, an accountant and tax expert in Buenos Aires.
The increase in deposits is still a fraction of the estimated $204 billion in dollar money in Argentina, according to a presentation from the central bank. Deposit levels are also still well below the peak of about $32.5 billion in August 2019, before falling during election volatility. Keeping dollar savings in cash, either in safety deposit boxes at home or in bank accounts abroad, is common practice in Argentina due to frequent financial crises and high taxes.
While the phenomenon bolsters the central bank’s gross reserves, the institution’s liabilities remain larger than its assets. Net reserves stand at a negative level of around $6 billion, according to local brokerage PPI.
Most read from Bloomberg Businessweek
©2024 Bloomberg LP
