"This government has ideas that date back to the '70s when the government owned a lot of properties," was one comment about the mood prevailing in Argentina after an eventful last 12 months. Decisions made by Cristina Fernandez de Kirchner's government ...
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"This government has ideas that date back to the '70s when the government owned a lot of properties," was one comment about the mood prevailing in Argentina after an eventful last 12 months. Decisions made by Cristina Fernandez de Kirchner's government – the expropriation of a major oil company, increased regulation in the oil and gas sector, and import restrictions – have led observers inside the country but also abroad to speak of the return of protectionism. But sometimes, measures meant to safeguard the country's economy, can backfire.
A Reuters report explains how: "After introducing in February a new system for pre-approving imports, purchases from abroad fell 8% in March from a year ago. While intermediate goods and parts make up half the country's imports, two-thirds of export income comes from manufactured goods. This means that limiting imports can cut domestic manufacturers off from access to potentially cheaper, higher-quality components than local producers can supply."
Another issue that may deter foreign companies from investing in the South American country is foreign exchange restrictions on remittances abroad.
The Argentine Revenue Service sets a monthly limit on the amount of dollars someone can purchase. This in turn has resulted in the emergence of a black market, Reuters reported. "Argentina's quest to keep dollars in the country is spawning illegal money trades inside offices and even schools."
"When Argentine companies want to remit funds abroad, they're told they can't because there is an imbalance between the money coming into the country and leaving the country. This creates many tax problems," said one adviser.
The introduction of import tariffs on capital goods in May by the government not only angered trade partners but it also prompted the EU to file a suit with the WTO.
The termination of three double tax treaties in just a six-month period – starting with Switzerland in January, Chile and Spain in June – has added to worries that the country is going the way of Venezuela. It also adds to concerns about foreign direct investment going to Brazil, Colombia, Chile, and Uruguay instead.
From a tax perspective, the Argentine Revenue Service is becoming more aggressive in its auditing activities. "Ten of the largest exporting companies have been targets, as the tax authorities believe that exporters are using foreign tax shelters," one adviser said.
The mid-term elections scheduled for 2013 may change the course of things. Depending on the outcome, there may be amendments made to the constitution.
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