EFAM | Escape From America Magazine

Financial Times, They Are A Changing

the financial world is shrinking

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.”

Resources:

taxnews.com

The Economist, Americas View:

Fiscal Paradise Lost

Paradise Uruguay Blog:
Uruguay Income Tax Law and Uruguay Banking Secrecy Law Updates

About the author: Julie R Butler [ send her an email ]grew up near Littleton, Colorado, and received a degree in Philosophy: Values and Social Policies from the University of Colorado in Boulder. A mere six months after relocating to Honolulu, Hawaii, her fateful encounter with a certain world traveler changed her life forever. Together, the two soon flew to LA to crew on a yacht, then spent some time working in the entertainment industry, bought themselves an old Volkswagen Van, and launched a road trip that lasted for more than a decade. Traveling and living for varying lengths of time everywhere from Costa Rica to Victoria to Main to Key West, they always gravitated to the intriguing Colonial heart of Central Mexico: Lake Patzcuaro. But in time, things changed, and the constant rolling over the roads of the Americas was replaced by other travels to Tahiti and Australia. More changes upon their return led them to follow their hearts to the Latin culture that they always felt so at home in. They now live blissfully near Lago Puelo, Chubut, Argentina. She co-edits Expat Daily News Latin America with her husband Jamie Douglas
You can find information about Julie’s, eBooks, Nine Months in Uruguay, and No Stranger To Strange Lands, at her blog: Connectively Speaking.

For more resources on Asset Protection visit the dedicated page on EscapeArtist.com

Offshore Banks Of The World – Listing banks in over two dozen of the the top offshore tax havens – Offshore banks provide access to politically and economically stable jurisdictions. This may be an advantage for those resident in areas where there is a risk of political turmoil who fear their assets may be frozen, seized or disappear. In the historical past, Americans living and working  abroad would open bank accounts with a local bank in whatever country they were living and working, and if it earned any interest at all would never show it on their U.S. income tax return.  This was part of the unofficial benefits of living in outside of the U.S. Handled correctly; it still can be

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2 Comments

  1. JE Cooper February 17, 2011 at 7:38 pm

    The US is not forcing down the value of the dollar. They are printing billions of dollars to cover their debt and this will continue. There is also a growing effort to drop the dollar for oil trade and international banking. When either of these occur, and they will, the current value of the dollar will look high in comparison. It will be very difficult for anyone living elsewhere on any kind of a fixed dollar income to afford. This change will have substantially more of an impact than the loss of tax havens has. For people who travel, they already can see that places who previously took dollars over the Euro or their own currency will no longer do so. And local exchange rates are a number of points over going rate because of the weakness and risk they see in the dollar even now.

  2. Explore Uruguay February 17, 2011 at 9:35 pm

    Uruguay being compared to the Switzerland of South America. That definately makes International Investors notice this much overlooked Country. Great weather, stable government, banking privacy, high literacy rates and friendly welcoming people are all reason to take Uruguay Seriously when you are looking at International Investments and Living abroad.
    Great info in the Article – Thanks!

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