Argentines Hoard $170 Billion in Cash as Milei’s Tax-Free Deposit Scheme Flops

Key Takeaways:

• Milei’s tax-free law failed to attract even $1 billion of the $170 billion held outside banks, curbing liquidity.
• Facimex Valores Adrián Yarde Buller notes that citizens distrust banks due to the 2001 crisis.
• Milei has walked back his main campaign promise to dollarize Argentina, citing peso preference.

Argentines Still Distrust the Government: Fiscal Innocence Law Struggles to Gain Traction

While President Javier Milei could have had the best intentions by approving the Fiscal Innocence Law to incentivize inflows of previously undeclared dollars into the financial system, Argentines are not buying it.

Analysts estimate funds held by Argentines outside banks reach nearly $170 billion, a sum that could very well reinvigorate the country’s economy, injecting much-needed liquidity into the system.

Nonetheless, even after Milei passed the aforementioned law, which licenses citizens to insert these funds without tax implications, dollar deposits have not risen by even $1 billion.

Adrián Yarde Buller, chief economist at Facimex Valores, referred to the great opportunity that this law presents, even though it has not yielded the expected results yet.

“The potential is enormous given the scale of assets Argentines hold outside the system, but it will take more than this law to change behavior. You need to rebuild trust in institutions — and that takes time,” he assessed.

Experts believe this phenomenon is linked to a natural distrust that Argentines have of the banking system after the so-called “corralito,” a measure taken by the government in 2001, which encompassed the conversion of dollar deposits into pesos at an unfavorable rate and limited withdrawals.

This has cemented the role of dollars among Argentines, who have always fled to the greenback in times of high stress or uncertainty. One of Milei’s campaign promises was to end the central bank and dollarize the economy, a measure he claimed would terminate inflation.

Nonetheless, he has recently walked back this idea, claiming that Argentines prefer the peso instead of the dollar due to the tepid response to the Fiscal Innocence law.

“People don’t want it. Strictly speaking, you can’t force things on people,” he recently stated.