Crimping credit

Apart from the advance factor (and the surrender of yet more personal financial data to the taxman), the 15 percent surcharge which AFIP tax bureau will be slapping on credit card purchases abroad as from today is not exceptionally outrageous within its context of the currency control tangle snarling the economy this year. In theory at least, the extra sum will be deductible from future income and wealth tax returns (even if AFIP efficiency always seems to descend several notches when it comes to reimbursements and even if up to 600 million dollars will accrue annually to the state) — debit card and online purchases are exempt for now. Brazil seeks to counter its currency appreciation with a direct tax of six percent on credit card purchases and AFIP is not doing very much more than trying to correct the consequences of an impossibly skewed exchange rate — if in the first half of this year no more than 168,000 credit cards spent 7.4 billion pesos in purchases abroad, according to AFIP, this is an entirely logical response to an official exchange rate of 4.65 pesos per dollar after comparing the purchasing-power of 4.65 pesos here with one dollar overseas.

Indeed the government has to do something because it is expanding money supply by up to 40 percent in a slow year with even more printing likely in an electoral 2013 in the hope of fuelling consumption — only to see much of this consumption going abroad with just more inflation here at home. But this cure effectively turns the double exchange rate plaguing the economy into a triple (or even quadruple with the “tourist dollar”) — to the official and parallel exchange rates is now added a new “credit card dollar.” Venezuela (which seems to be Argentina’s model for this dual parity) can cope with this dislocated exchange rate rather better because it hardly exports anything but oil — Argentina, on the other hand, has a major industrial component among its exports (which it hopes to expand) and the competitive position of manufacturers is badly affected by exchange rate lag.

To recapitulate, there is nothing especially wrong with this specific measure but rather with the general muddle of exchange controls, import curbs and inflation denial. The latter (conceived, among other purposes, to slash the dollars paid on index-linked debt bonds) might be manageable for the peso but sows chaos once the inflation denial is transferred to the dollar. As Sir Walter Scott told us two centuries ago: “Oh what a tangled web we weave/When first we practise to deceive.”