Economy What Would Dollarization Mean for Expats?

[earlyretirement]

You're confident that they're leaving Canada because it's becoming more socialist? And Mexico is what, exactly? Its president is described as "center-left, progressive, populist, and economic nationalist",

In parallel with this, it seems US Americans are leaving the US, and they're going to Europe, so they're not exactly fleeing socialism: https://web.archive.org/web/2023090.../28/why-europe-is-a-magnet-for-more-americans

They give some examples of people's experiences in the US: "Stanley had a cross burned on his lawn while growing up in Virginia. Several of Sylvia’s relatives were killed by guns".

'Now [US Americans] are aware that Europe has its advantages: “Good health care, better transportation, less gun violence, there’s racism but a lot less deadly.”' Maybe if we stay quiet down here they won't notice Argentina and leave us alone

I never said Mexico wasn't to the left. But at least there it's 1/3 of the cost! Ha.

 

[FrankPintos]

I never said Mexico wasn't to the left. But at least there it's 1/3 of the cost! Ha.

Seems like a sensible prioritization of concerns..

I've been curious about something, it doesn't have anything directly to do with the discussion here, but since you have friends in Spain maybe you have some insight: as you say, many Argentinians have migrated to Spain, and I've heard that they're heartily despised by native Spanish, since, rather than adapt to their host country, they brought the habits that helped make Argentina what it is: laziness, entitlement, dishonesty, not paying debts, fulfilling contracts, and skipping out on apartment rentals leaving money owing.

I've heard the same with regard to Israel, of all of their enormous diaspora, the one held in least regard is the Argentinian one, for the same reasons I listed above.

 

[earlyretirement]

Seems like a sensible prioritization of concerns..

I've been curious about something, it doesn't have anything directly to do with the discussion here, but since you have friends in Spain maybe you have some insight: as you say, many Argentinians have migrated to Spain, and I've heard that they're heartily despised by native Spanish, since, rather than adapt to their host country, they brought the habits that helped make Argentina what it is: laziness, entitlement, dishonesty, not paying debts, fulfilling contracts, and skipping out on apartment rentals leaving money owing.

I've heard the same with regard to Israel, of all of their enormous diaspora, the one held in least regard is the Argentinian one, for the same reasons I listed above.

Actually I haven't heard of any issues from my friends that moved to Malaga. Many, many live there. And those traits that you are talking about you have to remember the reason Argentines are like that in the first place is 80% of them are originally from Spain and Italy. I always joked they inherited those things from their grandparents.

I haven't heard of these kind of issues with the Argentines that are moving abroad. I hope not. But Argentines were never really looked at too well but much of the world. Especially Latin America. Why? Because during the 1:1 days when their currency was strong, I guess they were traveling all over the world and thought they were better than their fellow South Americans.

I think may Argentines have the attitude "I'm not South American". My grandma was from Spain! Or Italy! They tend to look down on others from their same continent.

 

[QuiloBa]

The look on Marra and Santoro's faces was priceless: Melconian concisely explains why the dollarization scheme is a fantasy by Milei and LLA as the BCRA has negative foreign reserves. "We're not going to dollarize at $730 pesos or infinity pesos, there are negative reserves and where are we supposed to get $45 Billion dollars from, Santa Claus?"

While I don't support Bullrich, I appreciate Melconian calling out Milei's bullshit, there's been too much discussion of why dollarization it's a bad idea from the Ks as opposed to the fact that it's simply infeasible.

 

[earlyretirement]

Nope. That's the challenge but remember that Macri got people to do it. Do you know how many BILLIONS came back in the last amnesty? Over $100 BILLION declared and Billions and billions back into the economy. Argentina signed a tax information exchange program in 2016 with the USA and other countries. But nothing has really been done. As I have mentioned in other posts, that will keep getting extended and kicked down the road. They said 2025 but that will probably turn into 2026, and so on.

I know many, many locals that brought back millions of dollars in the last amnesty. But you know what? They didn't bring it all. I can guarantee you that only a fraction of the declared assets outside of Argentina got declared the last go around. My estimate is probably about 25%.

Milei's advisors are on the right track. It's the game plan I had mentioned before. You push for a gradual increase and flow of those funds back. You play nice guy and say how you want to help these people. Offer NO taxes or penalties and promise of no prosecution. You make this the last time and the one and only opportunity and you have HARSH penalties including and up to losing the entire amount if it's cash or securities held offshore and not declared. Also, stiff jail sentences.

Then you actually push forward with these tax information exchange programs, especially in the USA and EU. Many, many Argentines have EU passports and have accounts there. So you just play up that angle with pushing forward with prosecution for offenders. But it's important to play nice guy first and assurances that no penalties and a nationalistic "come on, do it for yourself but do it for your country".

You make the incoming cash conditional of NO taxes if they invest that cash into real estate or businesses INSIDE Argentina. I realize people will have trust issues, but if they fear losing ALL their cash in seizures anyway then they will gradually do it. They already have the tax information exchange agreements in place so they just push forward. Now with technology, this is fairly easy to accomplish. It's not rocket science and can easily be done. I could have my software engineers do it. They already have created software for governmental agencies and municipalities and voting systems for cities.

So you have all this cash coming into Argentina being put to work. It would spur the real estate market again and you will see tons of activity. People have had this cash trapped outside of Argentina and most of this money isn't in high interest bearing accounts or high yield accounts. This cash could be put to use on cash flow with rentals. It will kill two birds with one stone because there are 0 rentals in Buenos Aires now as the laws are broken.

So you fix the long term rental laws as well once you win, Milei. You get all that cash coming in and people can buy real estate that will yield decent results. Real estate prices are relatively low right now with inflation adjusted dollars. So you create a huge amount of new rentals for long term market and maybe you give some tax incentive or incentive if the people bringing in money turns it into a long-term rental within 12 months.

I mean this is just one idea but you get the idea. The way you solve things is you work backwards which it sounds like last least Milei going from blowing sh*t up to thinking things through a bit and getting adults in the room.

 

[FrankPintos]

Nope. That's the challenge but remember that Macri got people to do it. Do you know how many BILLIONS came back in the last amnesty? Over $100 BILLION declared and Billions and billions back into the economy. Argentina signed a tax information exchange program in 2016 with the USA and other countries. But nothing has really been done. As I have mentioned in other posts, that will keep getting extended and kicked down the road. They said 2025 but that will probably turn into 2026, and so on.

I know many, many locals that brought back millions of dollars in the last amnesty. But you know what? They didn't bring it all. I can guarantee you that only a fraction of the declared assets outside of Argentina got declared the last go around. My estimate is probably about 25%.

Milei's advisors are on the right track. It's the game plan I had mentioned before. You push for a gradual increase and flow of those funds back. You play nice guy and say how you want to help these people. Offer NO taxes or penalties and promise of no prosecution. You make this the last time and the one and only opportunity and you have HARSH penalties including and up to losing the entire amount if it's cash or securities held offshore and not declared. Also, stiff jail sentences.

Then you actually push forward with these tax information exchange programs, especially in the USA and EU. Many, many Argentines have EU passports and have accounts there. So you just play up that angle with pushing forward with prosecution for offenders. But it's important to play nice guy first and assurances that no penalties and a nationalistic "come on, do it for yourself but do it for your country".

You make the incoming cash conditional of NO taxes if they invest that cash into real estate or businesses INSIDE Argentina. I realize people will have trust issues, but if they fear losing ALL their cash in seizures anyway then they will gradually do it. They already have the tax information exchange agreements in place so they just push forward. Now with technology, this is fairly easy to accomplish. It's not rocket science and can easily be done. I could have my software engineers do it. They already have created software for governmental agencies and municipalities and voting systems for cities.

So you have all this cash coming into Argentina being put to work. It would spur the real estate market again and you will see tons of activity. People have had this cash trapped outside of Argentina and most of this money isn't in high interest bearing accounts or high yield accounts. This cash could be put to use on cash flow with rentals. It will kill two birds with one stone because there are 0 rentals in Buenos Aires now as the laws are broken.

So you fix the long term rental laws as well once you win, Milei. You get all that cash coming in and people can buy real estate that will yield decent results. Real estate prices are relatively low right now with inflation adjusted dollars. So you create a huge amount of new rentals for long term market and maybe you give some tax incentive or incentive if the people bringing in money turns it into a long-term rental within 12 months.

I mean this is just one idea but you get the idea. The way you solve things is you work backwards which it sounds like last least Milei going from blowing sh*t up to thinking things through a bit and getting adults in the room.

Thanks for your lengthy response, I'm very interested in understanding this topic. I don't actually remember the Macri tax amnesty, since I arrived in Argentina in late 2017, so I did what any engineer would do, and I started searching. I came up with this, I don't know if you'd consider it a credible analysis (and I'm impressed that Argentina's tax policies provide so much fodder for academics to chew over), but at first sight it does seem to be a serious heavyweight publication: https://shs.hal.science/halshs-04103653/document

I'm still reading it, but right at the start it sets the context, saying "Argentines today [2022] report that nearly one-half of all their assets are offshore". and it does eulogise the Macri amnesty program, saying "We leverage rich policy variation from Argentina, which implemented the world’s most successful program".

This, however, is the critical paragraph: we "find suggestive evidence that Argentine taxpayers do not repatriate their offshore assets, despite sizable tax incentives for repatriation. First, we find little evidence that repatriation clauses, often included in tax amnesties, entice evaders to bring capital back into the country. Instead, most Argentine evaders chose to pay heavier taxes and keep their assets abroad. The lack of repatriation response is surprising in light of Argentina’s recent move to impose higher taxes on foreign assets. These results suggest that tax incentives do not explain why Argentines have offshore assets. Instead, we posit that wealthy Argentines keep their wealth abroad to insure themselves against economic volatility, currency controls, high exchange rate fluctuations, and inflation spells, and to obtain higher returns".

And they go on to quantify how much actually came back: "Participants revealed assets worth US$117 billion, representing 21% of Argentina’s GDP in 2016. The success of Argentina’s amnesty surprised even the authorities themselves. [...] The penalties raised US$9.5 billion in revenue equivalent to 1.8% of GDP (AFIP, 2017). These numbers suggest that Argentina’s 2016 amnesty program is one of the world’s most successful tax amnesties in the sheer value of the amount disclosed and the revenue collected from penalties".

USD 9.5 billion is certainly "billions and billions" from where I'm standing but nowhere near enough to finance a dollarization program. Argentinians just preferred to pay higher taxes, legitimise their foreign assets, and keep them out of the Argentinian banking system. Somebody needs to think again...

 

[earlyretirement]

Thanks for your lengthy response, I'm very interested in understanding this topic. I don't actually remember the Macri tax amnesty, since I arrived in Argentina in late 2017, so I did what any engineer would do, and I started searching. I came up with this, I don't know if you'd consider it a credible analysis (and I'm impressed that Argentina's tax policies provide so much fodder for academics to chew over), but at first sight it does seem to be a serious heavyweight publication: https://shs.hal.science/halshs-04103653/document

I'm still reading it, but right at the start it sets the context, saying "Argentines today [2022] report that nearly one-half of all their assets are offshore". and it does eulogise the Macri amnesty program, saying "We leverage rich policy variation from Argentina, which implemented the world’s most successful program".

This, however, is the critical paragraph: we "find suggestive evidence that Argentine taxpayers do not repatriate their offshore assets, despite sizable tax incentives for repatriation. First, we find little evidence that repatriation clauses, often included in tax amnesties, entice evaders to bring capital back into the country. Instead, most Argentine evaders chose to pay heavier taxes and keep their assets abroad. The lack of repatriation response is surprising in light of Argentina’s recent move to impose higher taxes on foreign assets. These results suggest that tax incentives do not explain why Argentines have offshore assets. Instead, we posit that wealthy Argentines keep their wealth abroad to insure themselves against economic volatility, currency controls, high exchange rate fluctuations, and inflation spells, and to obtain higher returns".

And they go on to quantify how much actually came back: "Participants revealed assets worth US$117 billion, representing 21% of Argentina’s GDP in 2016. The success of Argentina’s amnesty surprised even the authorities themselves. [...] The penalties raised US$9.5 billion in revenue equivalent to 1.8% of GDP (AFIP, 2017). These numbers suggest that Argentina’s 2016 amnesty program is one of the world’s most successful tax amnesties in the sheer value of the amount disclosed and the revenue collected from penalties".

USD 9.5 billion is certainly "billions and billions" from where I'm standing but nowhere near enough to finance a dollarization program. Argentinians just preferred to pay higher taxes, legitimise their foreign assets, and keep them out of the Argentinian banking system. Somebody needs to think again...

You're welcome. Yeah the last amnesty was very popular. The numbers are actually higher than what you're seeing in that last published report. I have some friends that work in the government. That's a staggering amount of money.

Here is the issue that many that don't know Argentina don't quite understand. Do you know why all of these people aren't that scared? Because it's all the status quo that has THEIR funds outside of Argentina. All the politicians, businessmen, elite. AND ALL their friends. That's why you never see these enforcement policies enforced between the USA. Do you think all of these people want to enforce it on themselves???? Nope. On their friends? Nope.

With Milei it changes all that. The guy that threatens to "blow the system up". Do you think he will have any issues throwing all of these people in jail or confiscating their funds? No. He wouldn't. Sure, he will know many friends that fall into this category but if he is serious about systemic change he needs to do that. Follow my advice.

If you have a President that is serious about this and threatens to publicly post about all of these people with accounts abroad and makes life hell for them. Do you think they won't bring it back in? Yes, I get what you're saying about people choosing to pay X% penalty not to Bring it here. But I'd guess the majority of it isn't declared and never was. You have to have strong penalties this time if they don't report it. And increase the taxes and penalties if they don't want to repatriate it.

See with Milei it's the first time a country like Argentina has had someone like this. That's why it's so exciting for many of the younger generation. Most of them know it's impossible to truly change things within Argentina without someone like this that is willing to shake things up. My guess is the guy probably gets assassinated if he wins which would be a shame. The status quo hates guys like this. Also, other leaders in the rest of South America if he wins you will see them scared. They know if it can happen in Argentina the shift to the right and center it will probably happen in their country as well. Especially if Argentina is successful.

 

[earlyretirement]

Thanks for posting that article! It was really good and I hadn't seen it before. It was one of the best analytical pieces I've read. I just base things on my own analysis and activities of more than 21+ years living and working and investing in Argentina.

I CAN tell you that whatever the figures and guesstimates all these analysts are throwing out there are just that a GUESS. The true number is going to be much greater than you could imagine. I mean, their numbers are shocking but I'd say take whatever they are guessing and probably add another 25% on top of the biggest estimates.

And I must insist that I'm AGAINST taxes or governments dictating what people can and can't do with THEIR money or where the hold it. But I digress that's another argument for another day. Argentina has to do some big moves here. As mentioned, the last amnesty is wildly successful. I think there's a way you can structure the next one and put more teeth into it, you put more fear into people that hold funds abroad, you give tax incentives for people that are bringing it back but especially all the cash on the sidelines INSIDE Argentina already.

It's going to take some creative thinking to incentivize these people to put their cash to work. My thinking is 0% capital gains taxes on anything they put the funds into for a minimum period of time so they just can't yank it out. They could sell but if it's before that time they would have the normal capital gains taxes. If they wait then 0%. As well, 0% asset taxes for X years or maybe forever on that asset (if it's real estate) to give them a big incentive.

You also have to remember something. Holding cash $$ is a big liability. A HUGE headache. In my office safe at my office, sometimes we would hold up to $3 million in cash for various upcoming purchases. We had break-in attempts and it was VERY stressful. Even having a safe with a foot behind concrete you worry as insurance doesn't cover CASH. So all these people holding cash do have risks. You make the incentive so great that it brings them out from under the shadows. JMHO.

 

[QuiloBa]

Is it possible? Sure, do I think it's likely? No.

People already bring/spend what they need from abroad/hide under their mattress for life here, and despite the corralito having been over 20 years ago there are people who still refuse to keep anything more than say 500 USD worth of pesos in the bank at any given time (if they have the money at all). Hell, I think we all know the folks in their 50s/60s/70s/80s who keep all their pesos in cash. The principle reason we've seen digital payments grow is because our largest bills are so small. Mercado Pago was a thing in the Macri era, but it wasn't needed as much since 1,000 pesos got you something back then.

Milei aspires to be a transformative figure, and I don't it's just my bias doubting his ability to do this. He confirmed what we all assumed, he'd like to dollarize at the blue rate, but aside from this weird cap and trade scheme for blanqueando money, which will just help the rich folks, it does nothing solve the 45 Billion Dollar hole in his equations, on top of the fact we're currently struggling to pay the IMF back with a similar sized loan.

I accept that Milei is likely to be the next president, I'm not trying wishcast with these critiques, simply point out that there are fundamental problems with these objectives that fly in the face of reality, and even more so when you need Congress for a bunch of them.

 

[earlyretirement]

I don't disagree with you and I'm NOT saying it will be easy. In fact, I've always said no matter WHO is the next president it's going to be a monumental task and will be difficult. NO way I'd ever want this job. But at least he is trying. The status quo isn't going to work. I mean things are pretty shitty right now. What the hell do they have to lose? They might as well try.

I agree it's not going to be easy to get locals to invest but you know what??? There are ZERO rents in Buenos Aires right now on long term rentals. For a city of 3.5 million. This tells you something. The laws are broken. The system is broken. Instead of the Senate admitting they f*cked up they sit around and ask more consultants what they can do. LOL. It's quite comical.

Like I said, come up with a scheme to get people to invest in it. Everyone needs a place to live in Argentina. Those without OWNING their own place are going to be screwed. Something like 120,000 contracts are going to end by the end of the year. There are already virtual NO rentals. What do you think is going to happen? You MUST be an owner in Argentina heading into the future. The ones that are fairly secure are the people that own their own place. The locals that I all know that are surviving this mess are only managing because they bought a secondary small apartment and renting it out in US dollars.

So I will debate with anyone why owning makes sense in Argentina vs. letting your cash sitting under your mattress basically lose you money. With inflation it's going to be worthless anyway. They are making a negative return on this money. All I'm saying is make a really compelling argument why they have to buy.

Having a "they will never do this or never do that" attitude won't solve things. People can post their ideas how they think this mess will get solved. Just bashing Milei won't help so come up with better solutions if you think you have better ideas. JMHO.

Is it possible? Sure, do I think it's likely? No.

People already bring/spend what they need from abroad/hide under their mattress for life here, and despite the corralito having been over 20 years ago there are people who still refuse to keep anything more than say 500 USD worth of pesos in the bank at any given time (if they have the money at all). Hell, I think we all know the folks in their 50s/60s/70s/80s who keep all their pesos in cash. The principle reason we've seen digital payments grow is because our largest bills are so small. Mercado Pago was a thing in the Macri era, but it wasn't needed as much since 1,000 pesos got you something back then.

Milei aspires to be a transformative figure, and I don't it's just my bias doubting his ability to do this. He confirmed what we all assumed, he'd like to dollarize at the blue rate, but aside from this weird cap and trade scheme for blanqueando money, which will just help the rich folks, it does nothing solve the 45 Billion Dollar hole in his equations, on top of the fact we're currently struggling to pay the IMF back with a similar sized loan.

I accept that Milei is likely to be the next president, I'm not trying wishcast with these critiques, simply point out that there are fundamental problems with these objectives that fly in the face of reality, and even more so when you need Congress for a bunch of them.

 

[earlyretirement]

Just saw this today. Yikes on the pricing but pretty amazing he has so much demand. He's saying the same thing I am that dollars sitting under your mattress are just becoming less and less valuable with the tremendous inflation. The guy is selling these in pozo stage for $6,000 a m2!! So I can't imagine what they will go for when they are finished.

There are plenty of ways you can get the $$$$ back into Argentina if you incentivize them.

Invierten US$30 millones: los Brito construyen un edificio de lujo Pininfarina a pasos del río

Marcos Brito cuenta cómo será el proyecto inmobiliario que tendrá 35 pisos y 90 departamentos

www.lanacion.com.ar

 

[earlyretirement]

Just saw this today. Yikes on the pricing but pretty amazing he has so much demand. He's saying the same thing I am that dollars sitting under your mattress are just becoming less and less valuable with the tremendous inflation. The guy is selling these in pozo stage for $6,000 a m2!! So I can't imagine what they will go for when they are finished.

There are plenty of ways you can get the $$$$ back into Argentina if you incentivize them.

Invierten US$30 millones: los Brito construyen un edificio de lujo Pininfarina a pasos del río

Marcos Brito cuenta cómo será el proyecto inmobiliario que tendrá 35 pisos y 90 departamentos

www.lanacion.com.ar

And the worst thing is this building is ugly! The interiors look horrible. That lime green countertop looks hideous to me. I hate Puerto Madero. There is so much money from these wealthy Portenos that they buy this crap in Puerto Madero. Even at today's exchange rate those HOA fees are brutal.

And I love how even the designer for the project admits "Puerto Madero is NOT Buenos Aires".

 

[Vince]

Dollarization will never happen. Honestly I think Milei would be a welcome change for Argentines. They FINALLY figured out that change won't happen without a drastic shift in government. Even if you hate Trump, if you look at his policies many of them were good and sound. Definitely better than Biden. I'd personally never vote for Trump but his policies were much better.

Truth of the matter is that Dollarization will never happen again. Sure, it's something that gets the average young person in Argentina excited but saying something and doing it are two different things.

I actually like many of Milei's policies and he is more pro-business. Still, unless Argentina totally blows up their employment law, labor laws, tax system, etc. etc. things won't change too much.

But many things have to change. I've never understood how a poor country like Argentina can allow all the nations in the Mercosur to come and attend University free. There will be a lot of changes that have to happen. But I wouldn't worry about dollarizing any time soon.

I actually don't know why anyone would want to be President of Argentina. It's going to be a tough tough job but I don't think he can do any worse than all the previous presidents ahead of him.

Was reading these old posts and you nailed it @earlyretirement by saying that dollarization would not happen.

 

[Betsy Ross]

Was reading these old posts and you nailed it @earlyretirement by saying that dollarization would not happen.

I don't know if I would say it will NEVER happen but it is true it will probably not happen for quite a while if at all.

 

[StatusNomadicus]

you nailed it @earlyretirement by saying that dollarization would not happen.

i guess there's something different about opinions from a businessman who provides great services for 20+ years in CABA, versus local Peronists and wannabe commies that speculate with no experience or accomplishments

dollarization can also mean allowing the US Dollar to exist as it already does, while removing the taboo/illegality of using it:

https://twitter.com/x/status/1737877182867796047

 

[Che Vos]

i guess there's something different about opinions from a businessman who provides great services for 20+ years in CABA, versus local Peronists and wannabe commies that speculate with no experience or accomplishments

dollarization can also mean allowing the US Dollar to exist as it already does, while removing the taboo/illegality of using it:

https://twitter.com/x/status/1737877182867796047

Yes I believe freedom to choose which currency is good but many people that voted for Milei believed something different. It already easier to use US dollars now but I guess you must see what most people thought dollarization mean.

 

[StatusNomadicus]

many people that voted for Milei believed something different

like what, specifically?

It already easier to use US dollars now

sounds like that's a good step toward Dollarization

I guess you must see what most people thought dollarization mean

sure; you're a local - what did most people mean? and do you actually know any Milei voters in real life?

Dollars were already used exclusively in Argentina, from real estate to Expat rentals to many other things; perhaps Argentina was already dollarized, so dollarization meant allowing it to occur in the "White" and not just the "Negro" which carries risks, unless you're connected.