Monday, 16 September, 2019

Argentina's peso under scrutiny following capital controls, as US markets reopen

Argentina imposes currency controls amid debt crisis - Xinhua | English.news.cn Argentina Enacts Currency Restrictions as Peso Falls
Russell Knight | 04 September, 2019, 16:09

The pounding of Argentina's bonds eased in Europe after they fell to record lows on Monday and there were tentative gains in some foreign-traded bank shares, as investors waited for Wall Street's first reaction to Buenos Aires' imposition of capital controls over the weekend.

The Central Bank of Argentina said the measures were meant to "maintain currency stability".

A foreign exchange trader said there had been a clear rise in demand for dollars via the parallel market, known locally as the "blue" market, and that over the next few days more people would likely seek to make a profit from the gap, buying dollars in the official market and selling them in the black market.

Argentina's government is taking increasingly drastic measures to control its currency.

Argentina's government authorised currency controls on Sunday in an about-face by President Mauricio Macri, who had previously lifted many protectionist practices of his predecessor, Cristina Fernandez de Kirchner.

"Treasury Minister Hernán Lacunza told reporters Monday the measures are 'uncomfortable" and "emergency measures to avoid greater evils and not increase poverty".

Macri's government and the central bank are trying to stabilise the economy as the October 27 presidential election looms, for which Fernandez is now the front-runner.

It was the government's latest attempt to stabilize the peso, which has lost 28% of its value since opposition presidential candidate Alberto Fernandez emerged as the clear front-runner in the August 11 primary election.

The measures are far less restrictive than those imposed by the government of former President Cristina Fernández, which restricted even spending on vacations overseas and taxed credit card transactions in dollars, leading to the rise of a currency black market.

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The central bank of Argentina has imposed restrictions on US dollar (USD) purchases in an effort to revive its plunging currency peso.

The Central Bank of Argentina bought US$300 million in pesos on Tuesday last week to try to calm markets, but the currency still depreciated by nearly 2.5 percent.

Hours after the decree was published, a spokesman for the International Monetary Fund, with which Argentina has a $57-billion standby agreement, said its staff were analysing Argentina's "capital flow management measures with the aim of protecting exchange rate stability and the savers". Some of the new interventionist policies may be hard to back out of later, analysts said.

More peso weakness was expected ahead.

The primary results triggered a collapse in investor confidence and sent stocks, bonds and the peso currency tumbling.

Macri won the presidency in 2015 on promises of "normalizing" Latin America's No. 3 economy by ditching the controls favored by the previous administration. Bonds maturing in 2038 recorded similar losses.

Argentina's currency, seen by some as a guide for the country's economy, closed at around 59.49 per US dollar on Friday. Those levels were last seen in the wake of a major 2001 default.

"There remains a lot of pressure on the currency".

The capital controls "may, in the short term, help to stem capital flight and slow the pace of FX reserve depletion", said Capital Economics in a note.

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