Argentina’s government is going to implement measures to reverse an increasing trade deficit. The update means a restriction on imports, including slot machines, whisky, and even “bovine semen.”
The government will take measures to slow imports, shore up product reserves, and prevent import abuse. The decision to take action follows two consecutive months of trade deficit, according to AZM TV.
The increase in purchases from the rest of the world of 47.3% in July exceeds the expansion due to consumption, according to Argentina’s Ministry of Economy. As a result, the importation of products grew exponentially, to the point that in the first half of the year, it had a value of $5.5 billion.
No New Slots
The Ministry of Commerce, Federal Administration of Public Revenue (AFIP, for its Spanish acronym) and Customs will seek not to overbill or purchase abroad greater quantities than those the normal growth of the economy demands. However, they haven’t quantified what that means in physical terms.
The government entities will also modify the temporary importation regime, work on the procurement of services, and move some products to non-automatic licensing. Most imported goods fall into one of two classifications – automatic licenses (AL) and non-automatic licensing (NAL).
Whisky, yachts, slot machines, cryptocurrency mining equipment (including computer mouses), and bovine semen, which until now enjoyed AL classification, will be NAL. Purchases without prior authorization (AL) currently represent 72% of the total. The 34 import categories the government is modifying are equivalent to five percentage points, covering $800 million in eight months.
In these, the AFIP and Customs identified substantial increases in declarations, up to 200% more than 2019. The cases cover potential over-invoicing and over-stoking, which deepened in recent months, as a result of exchange rate speculation.
In this line, the Ministry of Commerce will impose a scheme of advance declarations. Before being able to import, the AFIP will evaluate the economic capacity of the companies. That additional requirement aims to reduce irregularities. The objective is to try to justify all imports and thus defend the national industries.
The exchange rate gap of 115% between the official exchange rate, used in foreign trade, and the exchange rates in alternative markets encourages importers to increase their purchases from abroad. At the same time, exporters delay their settlements waiting for more favorable exchange rates.
On August 25, 2021, one ARS was worth US$0.0102. Now, it’s worth US$0.0073.
Considerable Flight Risk
Another change is coming that the authorities hope will inject more funds into the economy more quickly. They want to overturn a measure former Argentina President Néstor Kirchner implemented almost 20 years ago.
At the time, businesses could temporarily import goods without paying taxes, add value, and then export them. The turnaround period was initially 180 days, with the possibility of another 180-day extension. However, it is now 365 days, with another 365-day extension possible. As a result, the flow of money into the country takes up to two years.
These temporary imports between January and July amounted to $3.08 billion. More than half ($1.63 billion) came through the importation of soybeans. This resulted from an increase in local soybean oil production for exportation, which Argentina prohibited until 2016.
AFIP, Customs and other agencies now want to limit the time to 120 days, with a possible 120-day extension. In addition, companies will have to submit their imports to a government-led review upon arrival and departure.
One figure was particularly disturbing to the government. This year, there was an unusual increase in foreign trade activities in the free zone. The activity remained stable at around $350 million in the first half of 2019, 2020, and 2021. However, in the initial six months of 2022, it shot up to $781 million.
The various government entities monitored the activity to determine the motive. What they found was an inability to distinguish between legitimate transactions and those that helped obscure capital flight and facilitate money laundering. Not until Argentina solicited the assistance of US authorities did the problem subside.
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