BUENOS AIRES (Reuters) - Argentina hopes to reactivate its ailing energy and real estate sectors with a new law enticing both the middle-class as well as investors holding assets overseas to declare their greenbacks and put them back in circulation through a tax amnesty plan.
The new law was approved by Congress late on Wednesday night after a marathon debate in which the opposition lambasted the measure for not addressing what it sees as the root cause of the country’s capital flight problem - a lack of confidence.
Argentina, locked out of the international bond market since its 2002 sovereign debt default, needs foreign currency inflows to develop its fledgling shale oil sector and reactivate a real estate market that operates in dollars.
Some $200 billion mostly undeclared dollars are stuffed under mattresses in Argentina or socked away abroad, according to official government projections.
People here tend to seek safety in the U.S. currency rather than leaving their savings vulnerable to the country’s inflation rate, measured by private economists at 25 percent per year - well above the official rate - and unpredictable government policies that have sapped confidence in Latin America’s No. 3 economy.
Under the new law, Argentines who want to take advantage of the amnesty offer must spend undeclared dollars to purchase bonds which will be used to finance energy and infrastructure projects. The bonds will have a 2016 maturity and a 4 percent coupon.
Argentina will also offer a separate savings instrument backed by the central bank to finance housing projects.
Opponents of the law said it is aimed at masking the effects of being locked out of traditional financing, which requires sustainable government policies.
Alfonso Prat-Gay, an opposition lawmaker and former central bank chief, predicted low participation in the amnesty plan. He said the law “will do nothing to improve the economy,” because it does not address the core fact that saving in pesos is a losing proposition.
He also said the measure could make Argentina more vulnerable to money laundering.
“This is a tailor-made suit for tax evaders,” Prat-Gay said during a debate in the lower house of Congress that lasted nearly until midnight before a final vote was taken. The bill finally passed 130 to 107. It had already passed in the Senate.
Government-allied lawmakers said the country would remain protected by anti-money laundering laws already on the books.
“At no point are we suspending our anti-money-laundering norms,” lower house member Roberto Feletti, a former vice economy minister, said during the debate.
The peso has shed 23 percent of its value on the black market this year, trading at 8.9 per dollar on Thursday, about 68 percent weaker than the official exchange rate.
With public spending rising ahead of October mid-term elections, the country’s balance of payments position has worsened and the government’s need for dollars has become acute.
The government of the South American grains exporter virtually banned foreign currency purchases a year ago to stem capital flight as well as to safeguard dollars to pay for imports and repay debts.
“The tax amnesty, which openly targets foreign currency holdings, reveals that the government is rightly concerned about the deterioration of the external sector,” said Ignacio Labaqui, who analyzes Argentina for consultancy Medley Global Advisors.
The country’s balance of payments has weakened considerably over the last five years.
“Still, it is puzzling that rather than trying to attract foreign investment, the administration opts to combat a deteriorating external sector by courting undeclared funds which in some case might come from a dubious origin,” Labaqui said.
Additional reporting by Karina Grazina and Jorge Otaola; editing by G Crosse