World Economy

Macri Eyes $400b Owned by Argentines Overseas

Macri Eyes $400b Owned  by Argentines OverseasMacri Eyes $400b Owned  by Argentines Overseas

For Mauricio Macri, there may be a silver lining to the Panama Papers scandal that has dogged Argentina’s new president since he was accused of ties with offshore shell companies earlier this year.

Macri is hoping that his plan for a massive tax amnesty will be helped by increasingly tough conditions globally for tax dodgers, as he attempts to restore normality to what is one of the world’s most financially volatile countries, FT reported.

With as much as $400 billion estimated to be stashed in foreign bank accounts owned by Argentine nationals—almost equivalent to the country’s gross domestic product—a mass repatriation of funds could play a big role in stabilizing the struggling economy, in particular reducing pressure on the government to resort to issuing foreign debt.

In legislation being debated in congress, Argentines can choose between a penalty of between zero and 15%, depending on the amount and how soon their funds are repatriated, or invest in treasury bills. The government needs to raise $3.4 billion to pay a one-off debt to pensioners, and another $5.4 billion annually for higher pensions in the future.

Politically, the move could shore up popular support as austerity measures begin to bite, although it could also expand an already bulging fiscal deficit.

The government’s decision to boost demand in Argentina’s stagnating economy by injecting fresh funds could—if successful—put Macri in a strong position ahead of midterm legislative elections in 2017, in which his coalition needs to perform well to consolidate power, argued Nicolas Dujovne, an economist in Buenos Aires.

Struggling With Fiscal Deficit

Macri is struggling to balance the nation’s books—given a fiscal deficit of almost 7% of gross domestic product in 2015—without losing political support for his macroeconomic stabilization plan, which so far includes currency liberalization and six-fold rises in utility tariffs. Similar problems have undermined most Argentine governments in living memory.

“What is worrying is that Macri is making spending commitments with money that the government does not have,” said Nicholas Watson, an analyst at Teneo Intelligence in London, pointing out that past tax amnesties have fallen short of expectations.

“The administration’s weakness in congress, combined with rising public concern over inflation and job losses, appears to have persuaded Macri that now is the time to dabble in the sort of populism that he once criticized his predecessor for,” added Watson.

Oscar Muino, a local political analyst, applauded Macri for “regaining the initiative” after coming under fire for unpopular increases in utility tariffs. This led to his first big political defeat last month when the opposition in congress succeeding in passing a law—subsequently vetoed by Macri—that would have banned lay-offs for six months and established a double severance payment.

“Macri has learnt that he has to improve the lot of the less fortunate,” said Muino, who argues that until now the government’s reforms have tended to benefit corporate interests, such as oil and mining companies, and the financial sector. “Macri is showing for the first time that politics is in charge, rather than CEO-style management.”

Most analysts expect the bill to be approved by congress. But Dujovne warned that if the tax amnesty is as successful as he expects it to be—possibly attracting as much as $40 billion—the capital inflows will put upward pressure on the exchange rate, which is already strengthening at a time when most emerging market currencies are depreciating.

The previous government’s amnesty only brought in $2.6 billion, but regulatory changes in the OECD to be implemented in 2017 now provide a strong incentive for participation.