Javier Milei courts hidden ‘mattress dollars’ with plan to ease tax guidelines | USAEMALL.com

Javier Milei is preparing to relax Argentina’s elaborate curbs on tax evasion in a bid to coax billions of dollars of hidden savings back into the regular economy.

The libertarian president is set to unveil reforms in the coming days to sway what he calls the “heroes” who stowed away undeclared US dollars in order to escape a volatile peso and discredited banks and governments.

Argentina’s tumultuous economy, strict capital controls and a history of erratic tax changes have pushed savers to stuff about $271bn under mattresses, in safety deposit boxes and overseas, according to official estimates.

Critics say Milei’s effort to lure savers could be a gift to tax evaders and money launderers. But his government claims it can still police dirty money flows while regularising legally earned cash that Argentina’s challenges have pushed out of the system.

“Those who hid money aren’t criminals, they’re heroes who managed to escape from politician sons of bitches who wanted to screw you over with inflation,” Milei told a business conference last week. “We are relaxing the rules so that no one is persecuted for using the dollars you have under the mattress.”

A huge chunk of Argentina’s economy is informal. Almost half of workers are employed off the books, and it is common for even formal employees to be paid a portion of their salary under the table.

Major purchases like cars and even houses are often paid for in cash dollars, with buyers sliding stacks of bills across a table to sellers, and the price recorded well below the one paid, experts say.

“Argentines have PhDs in keeping money out of authorities’ reach,” said Diego Fraga, a tax law professor at Argentina’s Austral University. “The government will have to invent some carrots to attract those dollars because sticks haven’t worked.”

The country’s penchant for hiding dollars has many roots, including several episodes in the 1990s and 2000s where the government abruptly restricted access to savings, and tax policies that have swung wildly from one administration to the next.

Evasion is so widespread that governments have, on average, launched tax amnesties every four years over the past two decades, including one overseen by Milei last year.

The peso is a big push factor. The currency’s value has been decimated by chronic inflation, prompting people to save in dollars. When the government introduced currency controls in 2011, limiting dollar purchases in order to prop up the peso, many Argentines took their earnings outside of the legal system to a vast black market for dollars, known as “the blue”. 

Milei has significantly relaxed Argentina’s currency controls, but that doesn’t affect the billions that have already left the system.

“Anyone who has money that exited the formal system has to stay in the blue, they can’t risk going to the legal market,” said one black market money changer who trades about $100,000 a day in Buenos Aires.

Those hidden dollars can be exchanged on the black market for pesos and used to make small purchases, but anything significant is risky.

Retailers must take ID for cash purchases of more than about $180 and report them to tax authorities. Credit card providers, private schools and other businesses have similar requirements, said Fraga. “If your spending doesn’t match your declared salary, you face back taxes, fines, interest and criminal charges,” he added.

The regulations were tightened under left-leaning governments in the early 2000s as evasion rose alongside a series of tax increases. “It’s a fiscal panopticon, they monitor every part of the taxpayer’s economic privacy,” said César Litvin, chief executive of tax advisory firm Lisicki, Litvin and Associates.

Analysts expect Milei’s reforms to chip away at such rules to encourage big ticket purchases such as cars and appliances. Many tax-related policies require congressional approval to change. It is not clear if Milei will seek that before midterm elections in October.

The reforms may spark controversy, said Lucio Garay Méndez, an analyst at economics consultancy EcoGo. “There is concern about how you target dollars that are hidden . . . without letting in dollars from [illicit activities] too,” he said.

But Agustín Flah, an anti-money laundering compliance specialist and senior partner at Flah Attorneys and Consultants in Buenos Aires, said that “while any amnesty carries some risk, the government won’t do anything that ties the hands of the UIF [Argentina’s anti-money laundering agency] or violates the rules of the Financial Action Task Force [the global money laundering watchdog].”

Argentina faces a follow-up review by FATF next February after a visiting delegation last year decided not to place the country on its “grey list” of jurisdictions that needed extra monitoring.

Milei is betting on the mattress dollars to boost consumer spending that has stagnated in recent months as disposable incomes struggle to recover from inflation that peaked at 289 per cent last year.

With little chance of passing structural economic reforms before October’s midterms, consumer spending is Milei’s easiest option to boost the economy this year.

Gabriel Caamaño, an economist at financial consultancy Outlier, said the measures “will probably contribute something to bring back that dynamism” by regularising “maybe a few billion”. But he added it was hard to predict. The government ran a generous tax amnesty last year that helped double dollar deposits in Argentine banks compared with early 2024 to more than $30bn.

One Argentine, a manager at a small company who receives part of his salary off the books, said he was “intrigued” by Milei’s promises.

“But if participating means that my name ends up on any list anywhere, I’m not doing it . . . they tell you it’s fine now but in a few months, or with the next government, who knows what will happen?” he added. “This is the generational trauma in Argentina.”