So you know you want to expatriate to Latin America, but now you have to decide where. Among the many considerations you will have to weigh are, of course, the financial ones. But it’s not so easy, anymore. It used to be that the dollar was strong, Latin America was inexpensive, and banking secrecy was a major draw for people looking to protect their wealth. However, we are seeing some big shifts in these dynamics that are changing the whole game.
The first issue is the dollar. Simply put, it is weak right now, as engineered by the US Fed to make US exports more competitive. It will not stay weak forever, as Latin American nations face many problems that are tied to the weak dollar, such as high commodities prices combined with lowered international trade values, so their currencies’ strength may be somewhat fleeting. But for now, it is making life difficult for many whose limited incomes are in dollars.
Then there is inflation. Even as the economic outlooks for several Latin American countries, notably Brazil, Chile, Argentina, Uruguay, and Mexico, are excellent, inflation is eating away at buying power. Argentina, for example, has been short on coinage for quite a while now, which is a problem for people who use public transport because exact change is required. Like Glenn Beck hoards gold, people in Argentina hoard coins (and don’t expect to make change at the store, because you are more likely to end up with a few pieces of candy instead). But more recently, the government has taken the extraordinary step of outsourcing the printing of 100-peso notes to Brazil in order to keep up with demand for these amazing disappearing bills, as banks and ATM’s have been running out of them to dispense. Credit card usage is being highly encouraged, and indeed, more well-off Argentines may have less to lose with long-term debt than with making themselves into moving targets by carrying around large amounts of cash, or worse, in dealing with unreliable banks, which have suffered a rash of high-profile robberies recently, such as the tunnelers who got into and out of the safety deposit vault of a bank in Buenos Aires on New Year’s Eve while the police stood around wondering why on earth the bank’s alarm might be going off.
And that brings us to the third issue: that of banking. The world is shrinking, and everybody is talking to everybody else. We can appreciate this in our personal lives, but when it comes to banking secrecy, it may be a reality that many do not so much appreciate. Blame it on the terrorists, or the international effort to fight against terrorism, which involves following the money, which, like the scenario at the airports these days, affects us all.
Then came the financial crisis. Both in the effort to prevent another global economic meltdown as well as in the need for governments throughout the world to generate more tax revenues to deal with the double whammy of the economic slowdown and soaring deficits, the sharing of banking information has come under the focus of the United States, the European Union, and the Organization for Economic Cooperation and Development. The OECD, in December 2009, compiled a blacklist of “Uncooperative Tax Havens,” taking on even Switzerland in their effort to put pressure on jurisdictions that they consider to be encouraging tax fraud.
Over half of the locations on the list were in Latin America, with the majority of those having been in the Caribbean. In order to avoid sanctions, all of the named jurisdictions have committed themselves to establishing bilateral agreements with other nations for the sharing of tax information. Of course, this type of economic cooperation also benefits Latin America as the region tries to combat escalating drug-trade violence that is such a destabilizing force not just in Mexico, but is an ongoing threat throughout the hemisphere.
Yet, the tax havens of Montserrat and Panama, along with the financial centers of Costa Rica, Guatemala, and Uruguay have all dragged their feet in implementing their agreements, and are still on what is called the OECD’s “grey list,” while all others have made the OECD’s “white list” of those that “have substantially implemented the internationally agreed tax standard.” Yes, even the Cayman Islands have ceased to be an offshore tax haven, anymore. Just since last June, the Cayman Islands government has signed tax transparency agreements with Canada, the US, Mexico, and Indonesia.
The foot draggers have had their reasons. Panama, for example, has benefited tremendously by being a free-trade zone, and because incorporation has been made so simple that it can be done in a manner of minutes, the corporations pay no taxes on foreign activities, and company ownership can be easily concealed through the anonymity of “bearer shares,” Panama has achieved one of the world’s highest concentrations of subsidiaries. And Uruguay has established itself as “the Switzerland of South America” because of its banking secrecy laws and lack of taxes on foreign income in combination with its recent economic stability.
All of that is about to change. Panamanian President Ricardo Martinelli caved in to international pressure in November by consenting to tighten up restrictions on shell companies and to trade banking information on suspected tax evaders as a part of a free trade agreement with the US. This move will pay off in international trade, and it will also help Panama to further clean up its reputation as a drug money-laundering center, as its internal banking bureaucracy has been working towards.
Uruguay has already enacted its recently changed law so that foreign income gained from monetary instruments is now taxed, even when payments are received by a local subsidiary of a foreign institution. Plus, fifteen tax information-sharing treaties are in the works.
Matthew Lynn of Bloomberg News makes an excellent point about banking security that those who are upset about their lack of privacy might want to consider in this opinion piece, titled, Offshore Banks Adapt or Die in WikiLeaks Era. The times, they really are a changing, but the changes don’t have to be seen as ominous. After all, we are the lucky ones who have freedom of choice, freedom of information, freedom of movement, and when we are making decisions based on these freedoms, we should remember that the name of the game has always been “Adaptation.”