BUENOS AIRES, Argentina (AP) -- A plan to get Argentines to pull their undeclared U.S. dollars from under their mattresses and out of illegal tax havens, and deposit them in the banking system is eliciting warnings that it will turn the country into a magnet for money launderers and organized crime.
The government of President Cristina Fernandez dismisses those concerns, saying the proposal to accept these dollars without charging taxes or asking whether they were obtained legally is needed to finance the key construction and energy industries, which have stalled due to inflationary pressures and currency controls.
Critics say the real motive is to bring billions of greenbacks into the investment-starved formal economy, and thus stave off another crippling devaluation of the peso before October's mid-term congressional elections determine whether Fernandez can keep ruling with a free hand.
The proposal, which goes before the Senate next week, aims to get savers and investors to deposit undeclared dollars at Argentina's Central Bank in exchange for bonds and certificates of deposit. The bonds would pay 4 percent through 2016, while the CDs could be traded and eventually redeemed for the entire amount in dollars, as long as the holder presents evidence that the money was spent on construction or real estate.
The government says the law is aimed principally at Argentines who have bought U.S. dollars as a hedge against high inflation. Deputy Economy Minister Axel Kiciloff estimated that Argentine individuals and companies have socked away up to $200 billion in undeclared currency outside the country.
The government is trying to make up for its disappearing foreign reserves, which have fallen more than 20 percent to $39.4 billion, by bringing in these black-market savings before the legislative elections, said Alfonso Prat-Gay, a deputy for the opposition Civic Coalition and former president of the Central Bank.
But Argentina's auditor general Leandro Despouy warned senators that it could exacerbate the dollar shortage by increasing distrust among international anti-money laundering groups and holding back foreign investment even more. "This law is going to be objected to because of the opening it entails for the possibility of laundering," Despouy told a senate committee on Tuesday. He called it a huge invitation for anyone to have their money "legitimized through fictitious groups."
The Financial Action Task Force, which guides governments worldwide on money laundering controls, could conclude that Argentina is providing incentives to launderers because this would be the second amnesty the Fernandez's government has offered in five years. The last amnesty pulled about $4 billion into government coffers in 2009.
This proposal specifies that no elected officials and no one linked to crimes of money laundering, financing terrorism or tax evasion can benefit from the amnesty. But Roberto Durrieu, a lawyer specializing in the prevention of corruption and money laundering, said the law needs to include a "more specific typology of these crimes."
"There is a series of contradictions in articles of the project, and we run the risk that organized crime would see a window to enter Argentina," Durrieu told lawmakers.
Opposition politicians have noted that the proposal comes amid a federal investigation into money laundering allegations involving businessmen and financiers with close ties to Fernandez.
Lazaro Baez, a businessman close to Fernandez and her late husband, President Nestor Kirchner, has denied allegations that he became rich on public works projects through his access to the presidential couple and had cash flown out of the country on private planes. Kirchner's former personal secretary, Miriam Quiroga, meanwhile spent hours testifying before a judge and prosecutor on Tuesday after declaring in a TV interview that she saw bags of cash brought through the presidential residence.
Fernandez has rejected the criticism, and said her opponents are pressing for a peso devaluation that would devastate ordinary Argentines who lack the ability to hide funds abroad.
"Those who want to make money at the cost of a devaluation that the people will have to pay for will have to wait for another government," she said last week. "Every time there's an election, on the side there's the economy and on the other, the scandals. It's typical of every election."
The government's refusal to pay billions of dollars to foreign governments and other investors whose businesses have been expropriated or otherwise harmed by government decisions have largely closed off foreign capital markets to Argentina. The risk to future investments has raised borrowing rates to the point that poor, landlocked Bolivia can issue debt at a third of the cost of resource-rich Argentina. Meanwhile currency controls meant to stem capital flight have had the opposite effect, with dollars flowing out at an increasing rate.
The proposed bonds would help finance oil and gas development by YPF SA, the state-controlled energy company Argentina seized from Spain's Grupo Repsol last year. Repsol has gone to international courts seeking $10.5 billion for its controlling shares, which the Fernandez government has so far refused to pay, and threatened to sue any other energy company that tries to develop the Argentine oil and gas resources it discovered.
Argentina's construction sector, meanwhile, traditionally has fixed contracts and estimated building costs in dollars, and it slowed to a standstill after the Fernandez government ordered all new contracts to be made in pesos. Many buyers and sellers have found it too difficult to settle on prices in an economy where actual inflation is estimated to be rising more than twice as fast as the official rate of 10 percent, black-market trading for dollars values pesos at half their official exchange rate, and fears of a disruptive currency devaluation have grown.
In this context, the initiative seems to offer a lifeline to real estate developers.
"Any measure that looks to get dollars out from under people's mattresses and into the real, productive economy is welcomed," said Gustavo Weiss, president of the Argentina Construction Chamber.