Argentina stocks close higher after soft-peg exchange controls
Argentine stocks closed 6.45 percent higher Monday after President Mauricio Macri’s center-right government imposed currency controls in an effort to stabilize a deepening financial crisis.
The currency controls were imposed Sunday in part to bolster the peso, which also closed 5.38 percent higher to trade at 58.41 to the dollar.
Argentina imposed foreign-exchange controls on exporters as it closed out a week of financial uncertainty that saw a sharp drop in the peso.
Finance Minister Hernan Lacunza gave a cautious welcome to the peso’s rebound after a cabinet meeting.
“I believe that the dollar will be stable. It has dropped 2.5 pesos, but with very little volume” of transactions, he said.
However, the full effects of the measures remain difficult to quantify before the reopening of the US market on Tuesday following the Labor Day holiday.
“This being the holiday Monday in the United States, the bond market or ADR (Argentine shares on Wall St.) do not operate. We should see the serious reaction as of Tuesday,” said economist Hector Rubini of Salvador University in Buenos Aires.
Despite government assurances that individual savers would not be affected by the measures, lines formed outside banks Monday in Buenos Aires, where memories are still fresh of people being blocked from withdrawing their money during the country’s worst economic crisis, in 2001.
In a move to reassure savers, the government issued a statement insisting there would be no limit to withdrawals and asked that banks extend their opening hours.
– ‘Extraordinary measures’-
The decree published Sunday said the currency measures were needed temporarily to “regulate more intensely the currency exchange regime and strengthen the normal functioning of the economy.”
Under the “extraordinary measures,” transferring money abroad will now require government permission. And individuals seeking to buy dollars now face a monthly limit of 10,000 greenbacks.
All these new measures will be in place until December 31.
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.
“But their imposition might make it easier for a future left-wing government (which is likely after October’s election) to justify using them over the long term. That would result in persistent strains in the balance of payments.”
Argentina has been in recession since 2018, and is battling rising unemployment and one of the world’s highest inflation rates, running at more than 55 percent.
In a bid to calm market turbulence, last week Argentina asked the International Monetary Fund to restructure its debt payments on a $56 billion bail-out loan agreed last year.
The IMF said it was studying the new measures taken by the Macri government.