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The economic key terms that will open up Argentina to the rest of the world

 

The economic key terms that will open up Argentina to the rest of the world

Posted by Melenco Team in Trading, Worldwide 25 May 2016

“He who wants to import will be able to do so, and he who wants to buy dollar will be able to buy them.” With these words, the finance minister of the new government of Argentina proclaimed that a significant economic change was about to occur.

Last December, Argentina’s new government chaired by Mauricio Macri, announced the end of restrictions on buying foreign currency and a single exchange rate for the national currency, which is around 14.2 pesos per dollar (until that day it was sold by 9.8 on the official market and by more than 14 on the black market).

By ending the so-called “clamp” on the peso, the new government has allowed any person to trade freely in any foreign currency. Previously, Argentineans were subject to strict restrictions and taxes, which led to the rise of different types of exchange rates. The official rate, which was a state subsidy paid for with dwindling foreign-exchange reserves, was restricted for certain imports. The free dollar, known as the “blue dollar,” cost nearly double the price of what exporters received for their dollar transactions. This meant that exporters, people traveling abroad, and consumers in general were punished since the many goods bought abroad in free dollar value led to high levels of inflation.

Liberating the exchange rate immediately created a single value for foreign currency. The country’s real economic situation is now reflected in the dollar’s price, which has stabilized between the subsidized exchange rate and the blue dollar. This was achieved easily and quickly because of complementary measures, such as the lowering of taxes on agricultural and industrial exports.

Elimination of these taxes, which used to hit the livestock industry especially hard, and other financial arrangements will ease the entry of foreign currency into the country. The following are the main economic measures of Macri’s government:

– No prior approval from the tax authority is required to make cross-border transfers of funds. Restrictions on outbound payments (dividends, royalties, services, imports of goods) are lifted. There are no limitations to acquire foreign currency to settle new liabilities. Therefore, individuals and companies are allowed to purchase up to U.S. $2 million per month to make direct and portfolio investments abroad, as well as to keep such currency in foreign or domestic bank accounts.

– Reduction of export duties: export taxes duties on crops, including corn and wheat, were eliminated. The soybean tariff was reduced by five percentage points. This policy change is expected to encourage farmers to release their crops and thus result in an increase in agricultural shipments.

– Unification of exchange rate: Argentina will have one official currency rate, determined by the Central Bank in a “managed float” regime. This single exchange rate is expected to eliminate market distorsions arising from the multiple rates over the past four years.

– 35% tax surcharge on purchases made abroad. The measures repeal the 35% tax that is imposed on Argentine residents purchasing goods or services from abroad or online using a credit card.

All these measures intend to normalise the economy, after years of interventionism under Cristina Fernandez, the previous President. This way, the government hopes to increase exports, spur economic growth and regain investor trust in the country.

Argentina has opened up to the rest of the word, hoping for a greater role for the country in terms of international trade.

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