It seems there will be plenty of news from Argentina in 2014. Why?
The legal environment is defined by the needs of the economy for dollars and a necessary break to the recent outbreak of inflation fever in Argentina. These few weeks have proven to be very vertiginous.
As an example, the unofficial rate of exchange to the dollar on December 2nd 2013 was 9.18 pesos to the dollar; on January 17th 2014 the same rate was 11.95 pesos to the dollar. The official rate of exchange on December 2nd 2013 was 6.10 pesos to the dollar and on January 17th the same rate of exchange was 6.73 pesos to the dollar. At the same time, the Central Bank reserves fell from $52 billion in February 2011, to $38 billion in August 2013 to 29 billion in January 2014.
These movements in exchange rate and in the Central Bank reserves have triggered a series of measures from the government aimed at preventing further deterioration of the Argentine peso and Central Bank reserves. Some of these measures go back to October 2011 (prohibiting the purchase of foreign currency for savings) and others have been very recently put in place as a means to stop reserves bleeding dry. The effectiveness of these measures remains to be seen.
Let us take a look at the most recent government measures…
Firstly, with effect from January 1st 2014, the government has imposed a new internal tax on “luxury vehicles” although they are not really luxurious. This tax ranges from 30% to 50% depending on the value of the vehicle and is aimed at preventing the massive purchase of foreign vehicles by Argentines who could not purchase foreign currency and instead bought imported vehicles that were paid at the official rate of exchange – this was a means of purchasing goods denominated in foreign currency at the official rate of exchange.
Secondly, and in the same line of thought, the government has increased from 20% to 35% (which is the highest rate of income tax) the mandatory withholding of income tax applicable to consumption of goods or services abroad with a credit card, trying with this measure to deter the use of credit cards overseas by Argentina and thus trying to keep more dollars in the country; the account “tourism” in the central bank’s statements has gone from an $8 billion surplus in 2011 (meaning there were $8 billion dollars more spent by foreigners in Argentina than what Argentines spent overseas) to a $6 billion deficit.
Thirdly, as a means of attracting more dollars into the economy the government has extended the tax amnesty known as “voluntary disclosure of foreign currency”; this program originally expired on September 30, 2013, was extended to December 31st 2013 and has now been extended for another 3-month period until April 31st 2014. The government was expecting to receive $4 billion but only collected $570 million. Bear in mind that the only way of applying to this program was by subscribing to financial instruments issued by the government.
Finally, and also related to these issues, in October 2013 a new tax was created on the profits derived from the purchase and sale of shares or securities not publicly traded and a new tax (on top of income tax) on the payment of dividends.
Although the New Year has just started, there seems to be lot of movements and concerns in Argentina, the pace of the changes is so fast that you should be very well prepared to seize the opportunities that may come about.