Tuesday, May 21, 2024

OPINION AND ANALYSIS | 17-12-2022 06:00

Operation ‘spook’

With inflation running near 100 percent and an economy that could grind to a halt given a structural lack of hard currency, optimism is reserved for the brave.

We live in a world of contradictions when it comes to privacy, secrecy, and financial freedom – particularly for Argentines. On the one hand, the growing number of information-sharing agreements being signed worldwide, in particular by the United States, makes it increasingly harder to hide financial assets in a globalised system, particularly when the US dollar and US financial sector are the cornerstones of said system. At the same time, our hyper-financialised model of capitalism leaves a world awash with cash and other highly liquid financial assets, a mumbo-jumbo of jurisdictions, and there seems to be an interest by certain global superpowers in maintaining the existence of tax havens in certain jurisdictions, including those under US and British control.

In that context, Argentina’s hyperactive Economy Minister Sergio Massa has signed an agreement with another hyperactive politician, US Ambassador Marc Stanley, for a reciprocal exchange of financial information that was sold as part of a master plan to shore up our international reserves. This agreement, coupled with a new whitewash tax amnesty, could help the state rake in billions of dollars in revenue. And those who don’t comply could be in serious trouble, we are being led to believe. Unfortunately — for Massa — the experts that have seen the fine print don’t believe either part of the minister’s plan has a lot of teeth, or any for that matter.

When he took over from the fleeting tenure of Silvia Batakis at the portfolio, Massa sought to paint himself as a saviour of sorts, looking to control inflation and stabilise Argentina’s macroeconomic variables. This would blow wind into the Frente de Todos’ electoral sails, the plan went, giving it some chance of retaining power in 2023. Massa could very well be the pan-Peronist front’s candidate if he won the support of Cristina Fernández de Kirchner, potentially disarming Alberto Fernández’s own re-election bid if he’s successful where another of his predecessors, Martín Guzmán, wasn’t. After a promising start, it seemed like Massa had the political support of the coalition to push through several tough decisions including executing an austerity plan in conjunction with the International Monetary Fund. Many expected him to move forward with some sort of shock stability plan around March, given what appeared to be a dwindling of foreign reserves and an apparent incapacity to tackle structural inflation. That option was quickly abandoned when the hardliners closer to Fernández de Kirchner began to criticise the man from Tigre. From that point on, the “plan aguante” (or “plan try to hold on”) has been the name of the game. Massa, whose detractors point to his capacity to disguise empty promises as achievements (“vendehúmos,” in our slang), has announced all sorts of measures but ultimately what his team has been doing together with the Central Bank is to sit on however few dollars they have left and try to incentivise different export-oriented sectors to sell their products at differential and beneficial exchange rates.

Therein comes this new announcement. The agreement signed by Argentina and the United States works under the Foreign Account Tax Compliance Act (FATCA) and is known as an IG1 reciprocal agreement. The US has 113 of these agreements with countries across the globe, meaning it is fairly boilerplate, 60 percent of which are reciprocal meaning that the information exchange is reciprocal, according to Bloomberg. While Argentina’s tax sleuths were probably looking for information from local residents including account balances, they will only receive data on interest and dividend income from US sources, and only from individuals. This means that large stashes of cash that aren’t earning income or structures based on trusts and corporations will remain out of reach. Furthermore, the agreement is not retroactive and will only come into force once the US authorities clear Argentina’s agencies as safe and reliable both from both a security and a political standpoint. Thus, if the agreement comes into action before the end of the year, information will be released for the 2023 period by 2024.

Added to the inherent limitations of the FACTA-IG1 inked by Massa, the government needs to pass a bill through the lower house Chamber of Deputies in order to get the whitewash tax amnesty going. Given the level of polarisation and conflict with the opposition it seems unlikely that this kind of measure would pass. Even if it did, it would have very modest aspirations compared to the previous tax amnesty during 2017 when the Macri administration brought in nearly US$120 billion. Back then, Alfonso Prat-Gay had successfully eliminated currency controls by unifying foreign exchange rates while lifting capital controls. Macri’s pro-market platform, including unfulfilled promises to lower taxes and the apparent “end of Kirchnerism,” generated great expectations for Argentina. Today, with inflation running near 100 percent and an economy that could grind to a halt given a structural lack of hard currency, optimism is reserved for the brave.

We are in uncharted waters at a global scale. Once again, our current brand of financialised capitalism faces tough obstacles. Coming out of a global pandemic, the global economy is seeing inflation in figures unheard of in several decades. The war between Russia and Ukraine stretches on, as do supply-chain restrictions and other global trends that will persist in time. As global central banks raise interest rates they will hamper growth, pushing several economies into recession including possibly the United States and European Union. Inequality and poverty will increase at a time of polarisation in which the middle classes have been battered for decades, while the wealthy have become even more so. In that context, money has truly become digital and the global financial sector absolutely interconnected, to the point where the United States has extended its legal jurisdiction across the globe on the back of the preponderance of its banks and dollars. Governments across the globe are looking to earn more in taxes, to the point where some experts suggest we are experimenting the highest global tax burden in history. Will tax havens become eradicated? Are they of any use? Or will nothing be beyond the reach of the state? It’s a theoretical, philosophical, and practical question for our times.

Agustino Fontevecchia

Agustino Fontevecchia


More in (in spanish)