Back in May, Argentine President Cristina Fernández de Kirchner took a drastic decision to rid her country of black-market dollars: clean them up. In other words, the government started an operation of official money-laundering, in which citizens were encouraged to buy state bonds or invest in real estate or state-owned companies – no questions asked on where the money came from.
This is not the first time Kirchner has thought “outside the box” when trying to fix Argentina's fiscal situation – in 2008, the government managed to launder $4 billion. It was only natural to expect that this round would work just as well, except that it didn’t. This time around, Argentina only "cleansed" $379 million – less than 10 percent of the expected amount.
What happened then?
“The problem was trust,” economist Marina Dal Poggetto told Spanish newspaper El País. “Moves like this should be done at the very beginning of the administration, and not now, when the economic model has already been exhausted.”
“It is also very difficult for a country like Argentina, that puts limits to the purchase of dollars and has a very big difference between the official exchange rate and the black market, to get people to regularize their illegal dollars,” she added.
The refusal of the government to give an honest accounting of the economic situation has also fostered distrust. Private analysts have calculated the country’s inflation rate at 24 percent, but officials insist it is just 10 percent… or flat out refuse to talk about it. In a very publicized interview on Greek television in May, Argentina’s Economy Minister Hernán Lorenzino dodged the question of inflation by saying, “Let’s just cut this question out.”
On Sept. 29, the day before the ending of the operation, Ricardo Echegaray, director of the tax office, admitted the failure: “I’ve advised the president to not continue with the fiscal amnesty. The measure did not work out as we had hoped.”
But just two days later, Kirchner said the experiment would be extended for another three months, a decision applauded by Deputy Economy Minister Axel Kicillof. The government wants to give more time for cash to start flowing in – though it might just be artificially prolonging a dead plan.