Argentine peso, bonds plunge after capital controls

Andrew Cummings
September 4, 2019

In a sharp policy turnaround, the center-right government of President Mauricio Macri announced currency controls on Sunday in an effort to stabilize the country's deepening financial crisis.

The new measures restrict people from buying more than $10,000 a month, or making transfers exceeding that amount per month, though they do not limit them from withdrawing money from their accounts, the central bank said.

A spokesperson said "the executive branch needed to adopt a series of extraordinary measures aimed at ensuring the normal functioning of the economy".

However, some are concerned the move could jeopardize the International Monetary Fund's (IMF) latest disbursement of its historic $57 billion bailout program.

The current economic crisis has not yet sparked civil disobedience but it took a turn for the worse after the August 11 primary election, when opposition candidate Alberto Fernandez trounced President Mauricio Macri in the polls, spooking markets on fears of a return to interventionist policies.

Macri, who is fighting for political survival ahead of the general election on October 27, has been forced to resort to controls he once strongly opposed.

The central bank has burned through almost US$1 billion in reserves since Wednesday, but has failed to stem the peso's slide. "Tomorrow we might wake up and see that everything has changed", said college student and part-time worker Catalina Pedace, 25, as she waited in line outside a bank in downtown Buenos Aires.

Exporters, on the other hand, are required to liquidate their foreign exchange (forex) earnings in the local market under deadline i.e., five days. Companies will not be permitted to stockpile dollars, the bank said.

Currency controls are a potential spur for the black market, which in some periods of strict rule, including under the military in the 1980s, made up a large portion of total trades.

All these new measures are to be in place until December 31.

"All of this is to preserve the economy as well as possible in this circumstance", said the source, who requested anonymity because he was not authorized to speak to the media.

"The dollar at this level is now strong enough", Treasury Minister Hernan Lacunza told a news conference.

"If we do not do it, the consequences would be serious".

On Friday, the peso slid another 1.74 pesos against the dollar, devaluing a total of 33.2 percent compared with August previous year.

The peso closed at 59.52 per dollar on Friday. Staff understand that the authorities have taken these important steps to address liquidity needs and safeguard reserves.

The Fund's next scheduled review of Argentina's lending program is on September 15.

Mr Macri's popularity was seriously damaged after it was revealed his personal wealth had massively increased while inflicting harsh austerity measures.

"All the markets are in the red and a weakened country like Argentina, with a complicated political situation, gets hits even more", said Hector Scasserra, director of local brokerage firm Arpenta Sociedad de Bolsa.

Fernandez de Kirchner, in office from 2007 to 2015, clamped down on access to U.S. dollars in a bid to protect the central bank's precarious reserves.

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