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ECONOMY | 29-05-2020 14:56

Argentina would ease currency controls if debt talks are successful

Central Bank leaders implemented new controls Thursday night, restricting companies’ access to the foreign exchange market to pay for obligations overseas in dollars or other currencies.

Argentina intends to ease currency restrictions as soon as June 30 if the government reaches an agreement with creditors that’s well received by markets, says Central Bank President Miguel Pesce.

“Hopefully we can free up the market more once this negotiation is resolved,” Pesce said in a telephone interview Thursday evening. “We’ll have to see how the market responds to the stimulus if the negotiation is successful,” he said.

Pesce and Central Bank leaders implemented new controls Thursday night, restricting companies’ access to the foreign exchange market to pay for obligations overseas in dollars or other currencies. Firms that liquidate government bonds denominated in pesos for foreign currency must wait 90 days before and 90 days after any transaction.

The latest restrictions are part of a months-long clampdown on the nation’s unofficial exchange rates.

Argentina is going through a currency crisis. Despite strict controls, stalled debt payments and a nationwide Covid-19 lockdown, much-needed dollars are still leaving the country. The government’s foreign reserves dropped to a four-year low last week, totalling less than they did when the International Monetary Fund started a US$56 billion loan program in 2018.

“What you’re seeing today are speculative and opportunist pressures,” Pesce said, who added that today’s exchange rate is competitive. “No business leader complains about the exchange rate.”

‘Bureaucracy and barriers’

However, Argentine importers who often need to pay for shipments in dollars are complaining. Most import prices are tied to the unofficial exchange rate, which in recent weeks has become twice as expensive as the official rate that companies must use to convert revenues earned abroad into pesos.

The unofficial rate has climbed significantly as the central bank began financing some fiscal spending, fuelling concerns about higher inflation as the country is already in default.

Argentina’s so-called monetary base has increased as much as 24% since the quarantine began March 20, though it fluctuates day to day. Such growth at a time of plunging economic activity and low demand for pesos drove concerns.

Argentines see prices rising 47 percent over the next 12 months, the highest level of expectations since at least 2006, according to one poll. Those projections are encouraging Argentines to seek dollars.

“Since August the central bank has been putting sticks in the wheel, with different announcements that add bureaucracy and barriers to trade,” said Ruben García, president of Argentina’s Importers Chamber. “The government is hoping to buy time with this, while it’s attention is focused on resolving the foreign debt.”

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