Laundering exceeds expectations, but a new challenge appears: retaining dollars and strengthening reserves

The Argentine government achieved several milestones in economic matters, but, among all, the fiscal balance seems to stand out. This achievement is not only limited to numbers, but also to the growing consensus that Argentina cannot continue being a country with chronic fiscal deficit. In the absence of genuine financing sources, the country has depended on the monetary issuewhich inevitably generated inflation. The paradigm shiftwhere the need for fiscal balance is recognized, is perhaps one of the most relevant advances of the current administration.

Added to this is the freezing of the monetary basea measure that has slowed monetary issuance until the excess liquidity generated in previous years is absorbed. This adjustment, linked to a significant reduction in public spending, has been a key pillar to consolidate fiscal stability. However, in the short term, the recent Asset Regularization Regime– better known as money laundering – has emerged as another fundamental piece of the government’s economic strategy.

Whitening: first step to success

The first stage of the laundering ended on September 30allowing those who declared up to US$100,000 or those who externalized larger amounts, paying the corresponding penalty, to withdraw their funds as of October 1. In the 45 days prior to that date, dollar deposits increased by US$12.79 billionfar exceeding the government’s initial expectations. This initial rally represented an early and significant victory for the administration.

The key to this strong adhesion lies in the attractive incentives that money laundering offered. For small savers (less than US$100,000), the laundering was free of chargewhile those who exceeded this threshold could keep their funds in the financial system in various instruments and thus also achieve laundering at no cost, as long as they remained invested until December of the following year. These incentives were a determining attraction, but the real test was yet to come: could the Government convince savers to leave their funds within the financial system in the long term?

Retention of funds: a positive surprise

While adherence to whitewashing was a notable achievement, true success would lie in the ability of the financial system to retain these funds. Initially, banks assumed that a large part of the deposits could be withdrawn after the withdrawal window that began on October 1, leaving 90% of them in branches as a preventive measure. However, against all odds, in the first half of October, the system managed to retain 92% of the laundered funds, a result that has surprised even the most skeptical.

Instead of observing a capital flight, deposits continued to increase and totaled US$366 million in the last three days of this month. This result has been celebrated by the Government, which has stressed the importance of keeping money in the banking system. Although the security conditions and costs associated with keeping cash outside the financial system are natural disincentives, distrust of the system has been historically high in Argentina, a country that has faced recurring financial crises.

Fortunately, in the current context, there are no signs of insolvency in the financial system nor indications that the Government plans measures that harm depositors. This has generated a level of confidence that has allowed funds to remain in banks, helping to boost the economy.

Impact on the economy and reserves

Laundered funds, by remaining in the system, allow banks to expand their credit capacityespecially for exporting companies. This dynamic is crucial, since, as we have noted previously, financing exporters translates into an increase in the Central Bank’s net reserves. Furthermore, over time, these deposits will become part of the reserves in the Central Bank, thus increasing gross reserves.

Once these funds are part of the reserves, they become fungible, making them easier to use for face commitments in dollarseasing tensions over the country’s external financing needs. This ultimately reinforces financial stability, one of the central objectives of the government.

Conclusion: A Strategy That Pays Off

The Government bet big with a money laundering that, although it would not generate an immediate fiscal impact, sought to increase dollars within the financial system, boost the economy and, crucially, reinforce the battered reserves of the Central Bank (BCRA). So far, the results are encouraging: adherence has been robust, and, perhaps most importantly, the funds remain within the system, a sign of confidence that is vital for the Argentine economy.

For now, the strategy is paying off. The real challenge will be maintain this level of trust and continue consolidating reserves in the coming months, in a context where stability is both an objective and an urgent need.

Financial analyst