Argentina passes controversial tax-amnesty law
BY TAOS TURNER
BUENOS AIRES -- Argentina's Congress passed controversial legislation that pardons tax evaders if they invest their hidden cash in construction projects or use it to buy bonds to help finance state-run oil company YPF.
The law aims to bring much-needed U.S. dollars into the economy at a time when demand for the currency--and strict government limits on selling dollars--is causing problems for the country's foreign-exchange rate and its housing industry.
Homes sales crashed 41% in Buenos Aires in the first quarter of 2013 as confusion over the value of the peso wreaked havoc on the housing market, where transactions are traditionally done in dollars. The construction industry, which accounts for near 5% of overall economic output, has also suffered and tens of thousands of workers have been laid off recently.
The ruling FPV party and its allies passed the bill late Wednesday night, with 130 votes in favor and 107 votes against. FPV Congressman and former Deputy Economy Minister Roberto Feletti has said the law could lead Argentines to invest $5 billion.
Argentine President Cristina Kirchner is turning to tax dodgers to meet her government's foreign-currency needs as the country's central bank struggles to replenish its international reserves amid capital flight and a weak trade surplus. Argentina needs those reserves to pay its import bill and government creditors. On Wednesday, the reserves fell to a six-year low of around $38.5 billion.
In the absence of significant foreign-investment inflows, trade has become Argentina's only significant source of hard currency. But government forecasts of a $13.4 billion trade surplus this year look increasingly unrealistic. The trade surplus shrank 43% on the year to $2.46 billion in the January-April period due to stagnant exports and a surge in energy imports.
Opposition politicians accused the government of being desperate to get dollars from anywhere it could and, as a result of this law, of putting the interests of criminals ahead of those of law-abiding citizens who pay their taxes.
"This law is unfair. It's unfair in the same way that all tax-amnesty laws are [unfair]. It treats those who have broken the law better than those who have obeyed it. This is the worst type of tax amnesty. This law offers impunity for an enormous range of crimes," said opposition Congressman and former Justice Minister Ricardo Gil Lavedra.
Mr. Gil Lavedra said money related to narcotics trafficking, money laundering and other illegal activities could end up being invested in Argentina legally because of the law.
But Congressman Agustin Rossi, a top Kirchner ally in Congress, denied this claim and said the amnesty will apply only to money that was legally earned but illegally hidden from the government to evade taxes.
"That's the money that we're trying to attract in Argentina now," Mr. Rossi said.
Congressman Claudio Lozano said Argentina's growing need to import energy and its need to make upcoming debt payments is putting the government in a bind because it doesn't have enough reserves on hand to meet the country's financial needs. He said inflation is weakening the value of the peso and leading Argentines to seek safety in dollars.
Argentina is bucking a broader trend in Latin America, where many countries are seeing their foreign reserves grow amid low inflation and sustained economic growth.
A lack of confidence in Argentina's currency and in government policies has led investors to withdraw their dollars from banks. It has also led people and companies to buy up dollars in a vibrant black market because of fear that the peso will do nothing but lose value in the months and years ahead.
Dow Jones Newswires