Bargains forecasts in Uruguay as Argentine investors withdraw funds following new bank rules
By Dean Steinbeck (*) As much as it defies common sense, Uruguay entered into a tax sharing agreement that will scare off Argentine investors; the same group of people who are Uruguay’s biggest source of capital, investment, and innovation.
After months of negotiations, Uruguay capitulated to OECD and Argentine demands to end bank secrecy with respect to Argentine tax investigations. Once the deal is ratified by both countries' legislatures, Argentine tax inspectors will have access to Uruguayan bank account information for Argentine citizens suspected of tax evasion.
In order to understand the magnitude of this announcement, it is important to understand the significant degree to which Argentine investors dominate the Uruguayan economy and its banking system.
Over the last decade, the business environment in Argentina has been so bad, so business-unfriendly, that Argentine farmers, investors and businessmen were desperate to escape Argentina, and Uruguay was a natural destination for them. It's close, it's safe, and financial privacy was a sacred right. As a result, Argentine investors flocked to Uruguay and invested heavily.
Argentine farmers came first, buying up huge parcels of land and planting record quantities of soy. As the years progressed, more and more Argentines came to Uruguay to invest. In Punta del Este, Uruguay, over 75% of the homes are owned by Argentines. All of the infrastructure, banks, restaurants and amenities were created to cater to Argentines. At times, the town is just a suburb of Buenos Aires.
But the Uruguayan government could only raise wages, taxes and social benefits for so long before their economy began to stutter. And that's where things stood in Uruguay before this new tax sharing agreement. Uruguay was at a critical moment. The cost of living had risen uncomfortably. Social entitlement programs made Uruguayan workers less affordable. The cost of real property, and especially farmland, had skyrocketed. Construction costs were matching or exceeding those in the United States, and the quality was still generations behind. Uruguay was, by any standard, becoming expensive. As a result, foreign investment and tourism dollars were slowing. This summer, for example, tourists spent 17% less in Punta del Este than they did the year before. Local businessmen and real estate developers were already concerned and cautious. Many development projects were put on hold...
As much as it defies common sense, Uruguay entered into a tax sharing agreement that will scare off Argentine investors; the same group of people who are Uruguay’s biggest source of capital, investment, and innovation.
The truth is that a large percentage of money held in Uruguay by Argentines is undeclared in Argentina because Argentines don't trust their own government. They've seen their government unfairly seize pension funds, and expropriate private businesses. The Argentine people are justifiably concerned and they've responded by moving their money out of the Argentina and hiding it from their government.
For Uruguay, a tax sharing agreement with Argentina ensures that a large portion of Argentine money will leave Uruguay and go to more welcoming places.
Unfortunately for the Uruguayan working and middle class, driving Argentine investors out of Uruguay is clearly the final straw that will push Uruguay's economy over the edge (but hopefully not off a cliff). All that's left now is to watch the economic balloon deflate as Argentines pull their money out of Uruguayan banks and stop investing in the country.
Sure, intelligent minds can squabble over the timing and severity of the impact. Some politicians, journalists, government economists, and real estate agents believe the impact will be ”manageable”: a minor speed bump in an otherwise healthy economy. But some foreign investors are less optimistic as they remember the last time Argentine depositors withdrew funds from Uruguayan banks in unison. In 2002, as Argentine investors withdrew money in response to the crises in Argentina, a full-fledged bank run in Uruguay caused a complete collapse of the banking system. There were also ample real estate opportunities for those with available cash to invest.
Of course, to be fair, prior to 2002 bank deposits from Argentines accounted for nearly 50% of all deposits in Uruguay. Today that number is significantly lower and more likely sits around 25%, so it’s unlikely that Uruguay will experience another full-fledged bank run. Regardless of the strain placed on the banking system, one thing is universally agreed on: the tax sharing agreement with Argentina is not going to help the Uruguayan economy.
With fewer Argentine buyers to prop up the inflated real estate market, apartment prices are expected to drop dramatically, especially in resort towns like Punta del Este. Apartments that doubled or tripled in value over the last 24 months will likely fall to earth as Argentine sellers realize there are no buyers. With fewer construction projects to soak up every available worker, the cost of labor will go down, as will demand for the Uruguayan peso, which has appreciated significantly over the last eight years. A cheaper peso means lower costs of goods and services for foreign investors. At last, foreign investors hope that Uruguay will be affordable, again.
Because of the uncertainty surrounding the timing of the new tax sharing arrangement, many foreign investors believe the timing will be right in 12 to 18 months to start picking up real estate at reduced prices, and in particular, they expect income producing property to start yielding more attractive rates of return.
(*) Dean Steinbeck, a California-licensed attorney, resides in Punta Del Este, Uruguay. Mr. Steinbeck is a founder and partner in Uruguay Residency Group, a legal group that assists individuals and families in their efforts to obtain Uruguayan residency and citizenship. Mr. Steinbeck holds a J.D. from UC Berkeley School of Law and a Masters in Accounting & Finance from the London School of Economics
Suggested Stories
-
May 17th 2013
Argentina’s ‘autarkic project’ worsens bilateral relations and multiplies problems
-
May 16th 2013
Chevron agrees to invest 1.5bn dollars in developing YPF shale field in Patagonia
-
May 18th 2013
Venezuelan oil monopoly in joint ventures with Chevron and China Petroleum
-
May 18th 2013
“Blue” dollar in Argentina picks up in last day of trading and reaches 8.95 Pesos
61 comments Feed
Note: Comments do not reflect MercoPress’ opinions. They are the personal view of our users. We wish to keep this as open and unregulated as possible. However, rude or foul language, discriminative comments (based on ethnicity, religion, gender, nationality, sexual orientation or the sort), spamming or any other offensive or inappropriate behaviour will not be tolerated. Please report any inadequate posts to the editor. Comments must be in English. Thank you.
Why does the OECD not go after them?
I am against all banking “havens”. Why should they exist? I understand people hiding money outside their country if the government is ravenous, that's fine. But why is such secrecy needed unless you think your gains are questionable?
That's why I don't really respect countries like Switzerland, they have for centuries made money on the back of corruption, criminality both governmental and private, and war. And they defend it by stating “neutrality”. My arse. Neutrality is only valid for geopolitical processes, not for what are clearly lawful rights and wrongs.
Everyone knows a ton of cash in Swiss banks is shady.
Article says:
“The truth is that a large percentage of money held in Uruguay by Argentines is undeclared in Argentina because Argentines don't trust their own government. They've seen their government unfairly seize pension funds, and expropriate private businesses. The Argentine people are justifiably concerned and they've responded by moving their money out of the Argentina and hiding it from their government........”
I say:
”The truth is that a large percentage of money held in Uruguay by Argentines is undeclared in Argentina because tose Argentines are evading tax.........................................
This is finally coming to an end. Good for Argentina and good for our Uruguayan brothers.
Very funny ..the people comment here who never live in Mercosur countries.
#2 “The problem is not Uruguay in this agreement. The problem is countries like Panama, Switzerland, and the famous banking islands are not forced to follow suit”
Exactly. Of course its the UK who could force some of the banking islands to follow suit, but Cameron doesn't seem interested
#6 “I say:
”The truth is that a large percentage of money held in Uruguay by Argentines is undeclared in Argentina because tose Argentines are evading tax.........................................
This is finally coming to an end. Good for Argentina and good for our Uruguayan brothers”
Well said!
It is huge problem for such a small country to have unrestricted cash flowing into it with no where to go. It drives up property values way beyond where a normal market would take them. Property in PDE should be about 1/3 ( BA too) of what it currently costs based on similar properties you can buy in USA or EU. It is crazy expensive because it is all undeclared and drug $ money!
This article also fails to mention the Peiranos, banking family who emptied banks in Uruguay and sent the money to the Cayman Islands during the crisis in 2002.
And yanqui, only reason they told you that is because we don't want you here. If drug dealers/tax evaders keeps you out of our country, we're bloody all drug dealers and tax evaders. Instead of looking for houses here and critisize Argentina, you should start at your own front door and persuade your own government to send Juan Peirano to Uruguay, he is currently living of stolen money in Miami, claiming Uruguay doesn't respect human rights.
Don't worry, we'll send him back to you as soon as he served his sentence here.
I'm sure CFK has a beautiful safe house in Miami somewhere all ready for when she has to flee.
I wouldn't move back to SA ever again it is gross and dangerous. I tried it didn't like it and moved back to civilization and here I will stay.
By the way, I'm very glad to hear you gave up plans on coming here, if more people like you would take the same decisions as you, Uruguay would be a much better place...
I like Uruguay for brief periods when it is warm. I go sometimes in the Summer. Do you want a job cleaning the pool?
Regarding the job offer, thank, but no thank you, you can't afford my salary :)
You are the one who talks about his HUGE salary, multi-languages, multi degrees etc etc etc.
Yet you live in a poor 3rd world country, with your parents, taking the bus home everyday.
I'm just pointing out that my secretary makes more than your Doctors that is why the USA has so much immigration from SA. You can make more, do more, establish a better life for your kids than having a professional job in a backward country 13 hrs by plane to civilization.
If that is the price to pay for your standard of life, then be my guest and pay it.
We don't want your ways of living, as little as you have anything to envy.
We need eachother in order to survive, that makes us come together in a way that brings us another form of happiness, another form of richness. Something you will never understand, appreciate or even live :)
You are surviving on ill gotten gains. You are no better than all the slimy claudillos who's money you have hidden all these years.
Take your rose colored galss es off so you can see real SA.
According to the National Directorate of Forests, Argentina is experiencing the most intense deforestation in its history due to the replacement of forests with soy plantations, and Córdoba is the province where the most devastating environmental damage has occurred.
Over the past decade, as the output of soy rose steadily, the province lost an average of three percent of its native forests annually. Of the 10 million hectares of forests found in Córdoba a century ago, only 12 percent are left.
Again, what is your country doing to stop being a nation of criminals?
www.youtube.com/watch?v=tYrBSTBHCS4
Urguayan Military:
www.youtube.com/watch?v=UBln0imJblk
www.youtube.com/watch?v=MWQDVF_AIdg
www.youtube.com/watch?v=2bDWv2OW4IM
www.youtube.com/watch?v=yrJG4iomp5s
www.youtube.com/watch?v=RnIOx9UnVmY
www.youtube.com/watch?v=iTvxQfwx2vY
I could go on and on forever... Not to mention Vietnam and the bombs over Hiroshima and Nagasaki...
But yes, those Uruguayan military should be castrated and put in jail forever, as well as we should disband our small army. They are being processed by the way, what are you guys doing to bring justice to the Iraqui people? What did you do to compensate for the atrocities made in Vietnam (even though they kicked your glorious butt)?
AND I LOVE IT!
glorious butt...is that what your soldiers were saying about that boy?
That boy is currently in Uruguay making sure justice is being made to those warmonkeys. In contrary to you, I will never defend atrocities made by any military.
I take it “all of you” are very very old, because the sacking will stop within the next ten years, and your nation of criminals will have nothing left but the good memories of killing woman and children while China spends your money :)
We have 20-30yr planning outlines for our military 10yrs is already well accounted for...so you are sadly uniformed little man.
China may not be around in it's current for in 10 yrs maybe not even 5 it is falling apart rather quickly and they only need 1 or 2 provinces to break away for it all to start breaking apart. Do you not read at all?
I admit your military strategy is well planned, but your economic system is collapsing and your health system is non-existant. Try to shoot your way out of that one :)
Shooting our mouth off again without engaging brain, eh?
Where do you get the mythical '70%' figure from or are the Uruguayo Ministers lying?
Go back to school to finish you Marine Engineering course and stop baiting yankeeboy with all this nonsense.
Yankeeboy: I have been here for 12 months and I am fed up with Americans who come to live here to escape tax moaning that they have to pay taxes here as well!
Are these people stupid? Or is it listening to the likes of Dean Steinbeck, an American Lawyer living in Punta, and thinking that Uruguay is the land of milk and honey?
If these Americans want to whine and are unhappy they should do what you did and go 'home'.
Mr. Steinbeck fails to realise or is not explaining that the legal businesses that Argentinians own will be exempt from this law. IT IS MONEY IN BANKS held by Argentinos that the Argentinian Government is going after. Scaremongering and exaggerating the likey outcome is not helpful.
As I understand it, this agreement was done to allow Uruguay to go further along the road to getting a better financial grading. This seems to have worked.
And as for “This summer, for example, tourists spent 17% less in Punta del Este than they did the year before.” the reason is blindingly obvious - the ban on taking USD outside of Argentina and refusing to have the Argentine Pesos back in their own country.
I thought when this was announced by BA that it would have an absolutely devastating effect on Uruguay and quite frankly I am amazed at how little effect there has been throughout the country.
I nearly bought a property in the centre of Punta before I woke up to the grossly inflated prices being asked. Some people will get burned when the prices collapse (I think a lot have done so already) if they need to liquidate their position but I do not subscribe to or support this hysterical over-reaction to what in essence is a reasonable attempt of tackling the problem of tax-dodging.
investba.com/2011/07/70-uruguayan-bank-deposits-argentine/
Of course I can't confirm the source, as I don't work in that sector, but according to investba.com (or a blog within, a source that is fully appreciated in these threads) the number is 70%...
The reason Uruguay made this agreement with Argentina was to be excluded from Argentinas new export principles, amongst other things. If you truly are in Uruguay, mayhap you should listen to what Pepe Mujica says about the matter, he should know, as he was the one who made the deal with Cristina :)
I came home basically because I figured out I was too young to retire (late 30s) and could not take the general poor quality of life as compared to the USA. All the little things that I thought $ would insulate me from when I first moved there proved to be too bothersome.
Guzz, All I can say is watch china (and to a lesser extent india) there is trouble brewing and neither has enough reserves to keep their countries afloat when the population has mass civil unrest. The civil unrest has mainly been in the outer provinces but if it moves to the coast it will get UGLY fast. China may have been around for 5000 yrs but not in its current form and I don't think they can get themselves out of this mess easily. If not it will be scary for them but in the end good for the USA.
Also our healthcare is one of the best in the world it is only the liberal media bleating on and on that makes it seem like there is some sort of issue with it. Most people don't see it as an everyday problem. And economic system, also best in the world, all we need to do is get Obama out of office so we can get it rocking again. Americans hate Socialists and his poll number are looking worse and worse everyday THANK GOODNESS!!
Thank you for the link, but given the prevenance (BA) do you really believe it given that Pepe played down the effect of the law and the risk to Uruguayo banks?
The number quoted was under 25% and was a topic in Mercopress.
33 Brit Bob
I realise that was probably a tongue in cheek post but as a BOT the Falklands (there are no Malvinas) are subject to disclosure under UK law. :o)
Knowing our historical dependence on Argentina, I am quite sure these new measures will have a major impact on Uruguayan economy, but as I firmly believe that banking privacy laws only benefits the rich and puts the country in a false state of prosperity, I also believe that these measures are good for Uruguay in the long run.
I must admit that I still question mercopress more than I question BA sources though (don't pretend MP isn't biased), so yes, I think Pepe played down the effects, but as I said, it's good in the long run
I agree in pricipal to what you say about the overall effects of this tax agreement.
What also matters is the stability in the Uruguayan legal system and the fact that contracts are honoured, certainly in my albeit limited experience.
Why should international investors risk Argentina when Uruguay can offer them what they are looking for?
Perhaps now even more drugs money will flow in to Argentina...
We are a small nation, and I don't think for one second that we can compete with Argentina when it comes to attract foreign investors, as we have much less to offer than our big neighbour. At the end of the day, it all comes down to profit...
It might be true that the Uruguayan law system is quite fine, but it's not without its flaws, we still have, in contrary to Argentina, this horrible law preteding us from making justice for what happened during the military dictatorship. What disturbs me is that in EU/US hunt for friends in the region, they try to play us against eachother. Argentina is far from perfect, and we have our disagreements. But so is Uruguay, and if we disregard what is being said and take a look at the history, we do know who are our common enemies in actions and not in words. What has EU/US ever done for any SA country, but bringing misery? As the murga says, el tiempo me enseño que la miseria es culpa de los hombres miserables...
But Argentina's refusal to IMF to comply with 47 of 49 recommendations to combat terrorist financing and MONEY LAUNDERING makes it worthy of note.
And your hysterical, nonsensical ranting against the USA and EU is tiresome. Grow up you sound like a child.
It's not me being hysterical, it's a well known fact that you invade sovereign nations for natural resources, killing women and children in the process...
The Argentine government’s decision to re-nationalize its formerly state-owned oil and gas company, YPF, has been greeted with howls of outrage, threats, forecasts of rage and ruin, and a rude bit of name-calling in the international press.
We have heard all this before. When the Argentine government defaulted on its debt at the end of 2001, then devalued its currency a few weeks later, it was all gloom and doom in the media. The devaluation would cause inflation to spin out of control, the country would face balance of payments crises from not being able to borrow, the economy would spiral downward into deeper recession.
Nine years later, Argentina’s real GDP has grown by about 90 percent, the fastest in the hemisphere. Employment is at record levels, and both poverty and extreme poverty have been reduced by two-thirds. Social spending, adjusted for inflation, has nearly tripled
www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/argentinas-critics-get-it-wrong-again
A nice set of Data.....:
www.cepr.net/documents/publications/argentina-success-2011-10.pdf
In 2009 a wealthy Venezuelan working for the Chavez government was stopped at Miami with a suitcase full of money and was sent to a US prison for 4 years for illegally bringing money into the country. Testimony in the two-month trial heard allegations that the suitcase was part of a larger gift of $5 million dollars from Chavez to CFK.
According to the US Justice Department records...Wachovia Bank( now owned by Wells Fargo Bank) laundered 378,3 billions US$ between May /2004 -- May/2007................................................................
But the $5 million was for your queen...
Why not !
Regarding the twerp @50, it is worth noting that the argie “currency” was devalued by a factor of 1,000 in 1985. The “economy” leapt ahead, fuelled by the fact that realistic comparisons couldn't be made with the pre-devaluation “costs” whilst debts were, literally, a thousand times easier to pay. Or at least the interest was a thousand times easier to pay. But, nevertheless, argieland managed to attain an inflation rate of 12,000%. An awesome achievement! Nevertheless, by March 2000, argieland only needed a $7.2 billion stand-by arrangement with the IMF. By December of that year, it only needed a $40 billion assistance package arranged by the IMF. But by the last week of 2001, argieland had reached the enviable position of needing to meet debt payments on no less than $132 billion. In 2002, argieland “fixed” this by allowing devaluation of about 80%. I think we can all see where this is headed. With current argie inflation at around 25%, the argie currency is worth a quarter of 80% of a thousandth of what it once was worth. Get out those banknotes, argies. And the cellotape. Fix two together and you can wipe your ass. It'll be cheaper than going down to the store and buying toilet paper. How can such a cuntry fail? Well, it fails when a real nation (e.g. Britain) stands up and says “Get lost, wankers!” At that point, the sh*t hits the fan and argies realise that they've been taken for mugs for years. Not that it saves them because they are still argies. And they are condemned, worldwide, for being sick, imperialist, colonialist, thieving, queer, murderous, genocidal psychotics. I believe that the relevant phrase is “The only good argie is a dead argie!” Is there a reason to let this stain on the face of humanity continue to exist? It is easy to refer to them as “scum”. The question is - have they aspired to that level?
Twinky doesn't thinky!
Argentina's 12-month inflation expectations held steady for a third straight month at 30% in May, according to the median estimate in a survey published by the Torcuato Di Tella University.
The average response eased to 33.9%, from 37.1% in April, the university, known as UTDT, said Monday in its closely watched monthly report.
and El Think...I think Krugman agreed the Argentine path was best for everyone too. BUT He is probably the most quoted and dumbest progressive economist around except for maybe your Finance Ministers and current BCRA Prez.
They paid a “fine”. how much? $100 million dollar :D. Why? Barack Obama's “economic friend Warren Buffet” is a share holder of Wells Fargo. But ach, doesn't matter..it's normal in a Banana Republic. Oh by the way, it well through “City of London”. ..The Banana Capital of a Oligarchy.
“Krugman agreed the Argentine path was best for everyone too. BUT He is probably the most quoted and dumbest progressive economist ”
He's a Statistic Keynesian idiot. It's a shame that still to many people read what that clown writes in the NY Times.
My favourite warmonkey :)
So now it was the british that won our independancy, and not Artigas?
Why don't you go shoot at something...
By the way, did you enjoy the myotonic goat? Don't bother thanking me...
Commenting for this story is now closed.
If you have a Facebook account, become a fan and comment on our Facebook Page!