Argentinians rush to deposit cash savings as part of Mercy policy

(Bloomberg) — Argentinians are pulling their dollar savings out from under the mattress and depositing them in banks in a vote of confidence in President Javier Milei and his tax amnesty program.

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In a sign of optimism for Milei, dollar deposits rose 40 percent to $19.8 billion since taking office on Dec. 10, marking the highest levels since late 2019, according to central bank data. While Argentines are paid in pesos, bank savings accounts are often denominated in US dollars.

The flow of greenbacks back into the financial system comes as a welcome development for a country that has over the years suffered currency crises due to lack of foreign reserves in the financial system. Milei is also moving closer to one of his most important campaign promises to dollarize the economy, a reality that still seems distant for now 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 podcast broadcast on August 30. “This is not done for tax collection purposes.”

Deposits have increased by $5.7 billion since Mila took office – about $1.4 billion of which rushed in 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 cap of at least $2 billion. for this, according to people with direct knowledge.

The law, approved by Congress as part of a broader package of economic reforms in late June, allows people to declare up to $100,000 in cash previously held outside the system without paying taxes. Excess savings will be taxed at 5%, although larger amounts can also be declared tax-free if used to invest in bonds, real estate or other exemptions. Argentinians will have the chance to declare their dollars until March 2025, but then have to pay higher taxes on the excess amount.

“This is a very cheap opportunity for people to buy a car, renovate their house or start generating profits from dollars that today are locked in a safe deposit box,” said Sebastian Dominguez, public accountant and tax expert in Buenos Aires. Aires.

The increase in deposits is still a fraction of Argentina’s estimated $204 billion in greenback cash, according to a central bank filing. Deposit levels are also well below their peak of around $32.5 billion in August 2019, before falling during election volatility. Having dollar savings in cash, either in safes hidden at home or in bank accounts abroad, is common practice in Argentina due to frequent financial crises and high taxes.

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While the phenomenon strengthens the central bank’s gross reserves, the institution’s liabilities remain higher than its assets. Net reserves are at negative levels of about $6 billion, according to local brokerage PPI.

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