Reporting Regulations to Boost Domestic Spending and Promote Dollarization

 

BUENOS AIRES – Argentine President Javier Milei has eliminated reporting regulations that allowed tax authorities to track individual spending. This move aims to draw an estimated $271 billion in hidden dollar funds into the formal economy, boost spending, and ultimately push for economic dollarization.

Argentine government officials announced on Thursday that companies, including credit card firms and banks, are no longer obligated to report all customer purchases, and the amount of information taxpayers must provide in their annual income declarations will be significantly reduced. This radical measure is designed to encourage Argentine citizens to bring an estimated $271 billion (approximately 370 trillion Korean Won) in informal dollar savings—hoarded in anticipation of the nation's unstable peso, strict foreign exchange controls, and unpredictable tax policies—into the market.

 
'Endogenous Dollarization' to Revitalize a Stagnant Economy

Economy Minister Luis Caputo explained that these dollar funds are necessary to "remonetize" the economy, especially given the limited supply of pesos in circulation due to President Milei's tight monetary policy aimed at curbing inflation. He emphasized, "When the economy is healthy, you want more money supply. We need more money in the economy, but it doesn't necessarily have to be pesos. This remonetization process can happen with dollars."

President Milei had campaigned on a promise of full economic dollarization but faced difficulties due to a shortage of dollars at the Argentine central bank. Now, he is actively pursuing 'endogenous dollarization,' where dollars gradually replace the peso. At an event last week, President Milei asserted, "If individuals use their under-the-mattress dollars, eventually there will be so many dollars relative to pesos that we can close the central bank if we want to," thereby allowing them to be "freed forever from thieving politicians."

 
Market Reaction and Expected Effects

Earlier this year, President Milei had already changed regulations to allow companies to use foreign currencies, including dollars, as a means of payment. However, central bank data indicates that such payment methods accounted for only 0.3% of total transactions in March.

Lucio Garay Méndez, a macroeconomic analyst at local consulting firm EcoGo, stated it is "impossible" to predict how many dollars will be released by the new measures. However, he added that increased purchases of cars, homes, and home appliances using dollars could help stimulate economic activity, which has been stagnant in recent months. While Argentina's economic activity increased by 5.6% year-on-year in March, it saw a 1.8% contraction compared to February, marking the first contraction in 10 months.

Garay Méndez analyzed, "The government faces a conflicting situation: it's trying to calm the economy to lower prices as much as possible, while at the same time wanting activity levels to continue rising." He concluded, "These dollars could play a role precisely at this juncture."

The world's attention is now focused on whether the Argentine government's radical measure will successfully bring out these 'under-the-mattress dollars' and provide a breakthrough from persistent inflation and economic stagnation.