Government creates new exchange rate for provincial economies

Argentina's government is doubling down on its complicated currency strategy to boost exports by adding a new temporary exchange rate.

The new rate will apply to exporters in Argentina's smaller provinces who participate in a price control programme, Economy Minister Sergio Massa said on Monday. It also provides for provincial governments to mediate contracts between exporters and producers to ensure domestic availability of products.

While the announcement lacked details on the rate exporters will receive or the products it covers, responding to a query an Economy Ministry official said Massa would announce the exact size and scope of the measure in the coming days.

Argentina, which has maintained capital controls since 2019, has a litany of informal exchange rates for certain activities, from foreign travel and big music concerts to financial transactions.

In September, Massa allowed soybean exporters access to a weaker exchange rate for a few weeks, boosting dollar inflows but also injecting more pesos into the economy at a time when demand is low and inflation is approaching 100 percent.

Similar to how the government has supported other value chains, regional economies "are going to have access to a differential exchange rate to boost exports", Massa said, speaking at a vineyard in Mendoza Province.

The new rate will come into effect between November 20 and December 30, he added. Massa also announced credit lines and tax deferrals for farmers affected by the worsening drought.

Argentina's official exchange rate is controlled by the government through a combination of capital controls, price freezes and import restrictions. This framework has created a gap between the official rate and all informal rates. Massa and other officials oppose the conventional measure of a sharp currency devaluation, arguing that it would hurt the poorest Argentines.

The latter measure risks creating friction for Argentina's US$44-billion programme with the International Monetary Fund. The IMF's technical team, which assesses the programme's progress every quarter, had to approve a waiver for Argentina in October because the temporary exchange rate for soybean exporters violated the agency's rules. On Monday, Massa compared the upcoming exchange rate to that for soybean exports.

An IMF spokeswoman did not immediately respond to a request for comment.