“The key is that nobody asks where you got your dollars.”
President Javier Milei is on a mission to transform Argentina into a paradise for money launderers — including, it seems, the creative accountants of drug trafficking organisations. Both he and Economy Minister Luis Caputo have spoken in recent days about “relaxing” (in the FT’s words) Argentina’s curbs on tax evasion and money laundering in a bid to attract billions of dollars of hidden savings back into the formal economy.
The proposal contrasts starkly with the general direction of travel on cash these days, with most governments looking to make it harder to use, deposit and withdraw physical currency. As we reported two weeks ago, Spain’s tax agency has implemented a raft of anti-money laundering measures including one stipulating that anyone planning to withdraw more than $3,000 of their own money from the bank must notify the State in advance, or risk facing punitive fines.
France’s Justice Minister Gerald Darmanin has gone even further, proposing to abolish cash transactions altogether on the grounds that digital payments – including cryptocurrencies – are much easier to trace than physical money and would help authorities combat drug trafficking and other criminal activity.
As such, the Milei government’s proposals should, in principle, represent a welcome step in the opposite direction. However, while the proposals are still somewhat fuzzy on detail, the language used by Milei and Caputo in recent days suggests their intent is not so much to relax tax evasion and money laundering rules as it is to remove them altogether.
This will be a boon not just for criminal organisations but also for inveterate tax evaders who for years, if not decades, have stashed their money in tax havens like Panama and the Cayman Islands, including Caputo himself. The government calls the initiative the “Plan for the Historic Reparations of the Savings of Argentines” and says it will take place in two stages.
“The first involves everything that the national executive branch can do and is within its reach. It will be applied by decree, which the President will sign in the next few hours, and the UIF will adapt its regulations to the new scheme,” said Milei’s spokesperson, Manuel Adorni. One of the decrees signed by Milei stipulates that there will be no fiscal control over cash operations involving sums lower than just under $50,000.
The second stage, said Adorni, “will consist of a bill [sent to Congress] to shield Argentine savers from here to the future, against the next administrations.”
Ask No Questions, Get No Answers
“I do not care in the slightest” how Argentines got their dollars, Milei said during a television interview on Monday, during which he appeared to encourage tax evasion and play down the risk of courting organised crime. From the Buenos Aires Herald:
Asked about dollars stemming from tax evasion, the president said that “taxes are robbery,” later adding: “people who tried to protect themselves from thieving politicians are heroes, not criminals.”
He went on to argue that organized crime such as drug trafficking should be combated by the Security Ministry and the Defence Ministry, without involving the economy. “You do not use the economy to fight crime,” he said.
Even for Milei, who admits to having regular conversations with his dead dog through a medium, this is an absurd thing to say. After all, it is through the economy that criminal organisations are able to transform the proceeds of their activities into untraceable money that can easily be spent, or into assets that can be held or sold.
What the Milei government is essentially proposing to do is, on the one hand, escalate its “all-out war” on the drug trade — which, if we’re being honest, is not very libertarian-minded — while at the same time giving drug traffickers free reign to launder their money into the official economy.
Drug money is a huge source of liquidity for the global banking system — so much so that Antonio Maria Costa, head of the UN Office on Drugs and Crime, claimed that drugs money essentially saved some banks from collapse during the 2008-09 Global Financial Crisis, becoming “the only liquid capital investment available.” The fact that Canadian lender TD Bank was recently fined $3 billion for laundering drug money suggests this trend is alive and well.
And that appears to be what Milei’s new fiscal amnesty is ultimately all about: remonetising Argentina’s financial system (and central bank) using the proceeds of crime and tax evasion, because something tells me it will be mainly criminals, both of the blue- and white-collar variety, (and not everyday Argentines) who will be taking advantage of the new rules. And even some of them may blanch at the idea of putting their money in Argentina’s banking system.
Now, back to the Buenos Aires Herald piece:
For the measure to work, [Milei] said, “the key is that nobody asks where you got your dollars. What’s more, I don’t care where you got your dollars. I don’t care in the slightest. That’s to say, economic issues are fixed in the economy. Issues of other kinds are fixed in the legal and judicial sphere. You have to understand that: they shouldn’t be mixed.”
After the plans were announced, María Eugenia Marano, a lawyer focusing on economic crimes, told the Herald that allowing the population to use dollars with no questions asked facilitated bringing laundered money back into the financial system.
Here’s what Milei has to say about the suckers who have actually been complying with the law and paying their taxes over recent decades:
“Maybe [that person] didn’t have the talent, the guts or whatever it was to get out of the system. If everyone had managed to do the same, perhaps the politicians would have stopped stealing from us.”
All of which is darkly ironic given the Milei government ramped up taxes on just about everyone, particularly the lower middle classes, as part of the economic shock program it began administering in December 2023.
“Liberating Mattress Dollars”
In a speech at the annual conference of one of Argentina’s most powerful business lobbies, AmCham, on Tuesday Caputo spoke of “liberating” the use of “mattress dollars” to promote the “remonetisation” of economic activity. That is something Argentina desperately needs.
Industrial activity in the country plummeted by 4.5% in March, exacerbating an already well-established trend. It was the worst decline since December 2023, when the just-installed Milei government imposed a 118% devaluation. A recent report by the Interdisciplinary Institute of Political Economy (IIEP) of the University of Buenos Aires (UBA) found that exports of the sector plummeted 17% in the past 20 years.
Corporate defaults are also rising, partly due to the government’s recent lifting of currency controls, Bloomberg reports:
Companies took advantage of the currency controls that created a gap in exchange rates by importing goods at the stronger official rate and selling them in pesos linked to a weaker parallel rate. Companies were also able to borrow in the local capital markets, benefiting from investors looking to hedge against currency risks and rushing to buy securities linked to the official exchange rate, such as bonds or commercial paper.
Following those recent overhauls however, companies are beginning to stumble, with two subsidiaries of utility Albanesi SA on Monday unable to pay $19.5 million in interest on a bond that was issued just six months ago. The default adds to a list that’s expected to get longer as Milei pursues his dramatic shift of the Argentine economy.
Agro-industrial companies Grupo Los Grobo LLC, Agrofina and agricultural supplier Red Surcos SA in recent months also failed to meet their debt obligations. Red Surcos, for one, in December defaulted on the payment of two promissory notes. Los Grobo and Agrofina accumulated claims for non-payment of debts of around $300 million, according to local news reports.
So far, the defaults aren’t systemic, nor are they concentrated in a single sector. Still, they’re highlighting the growing pain points for companies in Milei’s Argentina.
Consumption, particularly among lower income groups, is also showing no sign of recovery as annual inflation remains at a still-high 47% while wages in the private sector continue to stagnate. In March consumption levels fell 5.4% year over year. It was the 16th consecutive month of decline. It is against this backdrop that the Milei government is seeking to lure billions of “mattress dollars” back into the official economy.
“It is not money laundering,” Caputo said, “it is the beginning of a new regime”:
“What we’re going to do is much deeper. It is the beginning of a new regime. In Argentina, the level of informality is so high as a result of two reasons: taxes and excessive regulations. Argentina assumes that 99.99% are criminals and this is not the case. We take this to a level of madness that leads people to escape formality.”
The Milei government estimates that Argentines have anywhere between US$200 billion and US$400 billion — the equivalent of between 33% and 66% of the country’s GDP. According to the INDEC statistical bureau, Argentines held US$256 billion in cash and deposits outside the nation’s financial system in the last quarter of 2024. Releasing that money, Milei says, could “drive a sharp acceleration in economic growth.”
Successive Argentine governments, including Milei’s, have launched tax amnesties but with muted impact. Milei has likened his proposed “Plan for the Historic Reparations of the Savings of Argentines” to a tax amnesty — just without the tax part.
You might think that such a move would earn the Milei government a stern rebuke from the US government but so far, crickets. In fact, Abigail Dressel, the chargé d’affaires of the US embassy in Argentina, spoke at the same event as Caputo, and had nothing but effusive words about US-Argentine relations and Argentina’s “radical shift in economic policy” under Milei. Perhaps conversations are taking place in private but in public there’s not been a whimper of protest from the US Treasury or State Department.
Decades of Distrust
One of the main reasons for Argentines’ penchant for holding dollars under the mattress is the chronic weakness of the Argentine peso, notes the FT:
The currency’s value has been decimated by chronic inflation, prompting people to save in dollars. When the government introduced currency controls in 2011, limiting dollar purchases in order to prop up the peso, many Argentines took their earnings outside of the legal system to a vast black market for dollars, known as “the blue”…
Those hidden dollars can be exchanged on the black market for pesos and used to make small purchases, but anything significant is risky.
Retailers must take ID for cash purchases of more than about $180 and report them to tax authorities.
The FT hints at an arguably more important reason: the general public’s distrust of the government and banking system following “several episodes in the 1990s and 2000s where the government abruptly restricted access to savings.”
Those “episodes” include the so-called “Corralito” (corral, animal pen) of December 2001, when the Fernando de la Rua government, facing a gathering bank run, imposed a limit of cash withdrawals of 250 ARS per week. At that time, the ARS was pegged artificially one to one against the dollar.
With the stroke of a pen, $70 billion of personal and business savings were frozen. Within days, de la Rua was forced to flee the Casa Rosada by helicopter following nationwide protests, strikes and looting that had resulted in 30 deaths and 400 injuries. Weeks later, his replacement, Eduardo Duhalde, depreciated the Argentine currency by 400%, leaving millions of Argentines facing ruin.
Well-connected bankers, financiers and politicians were able to pull their money out of the banking system and send it overseas before the Corralito came into effect. Much of it still remains overseas but could soon be coming back thanks to the new rules.
The question is: will Argentines in general be willing to entrust their hard-earned savings with the banks again, especially given the ongoing weakness of the economy?
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Nick Corbishley 