Argentina Introduces Currency Controls Amid Deepening Debt Crisis

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By: Carlie Porterfield

Topline: Argentina, South America’s third-largest economy, has imposed currency controls in a move meant to tackle the economic crisis that has spiralled since elections last month. Businesses will need permission from Argentina's central bank to buy dollars with pesos while individuals are limited to purchases of $10,000 per month under the "extraordinary measures" meant to address 26% slide in the peso against the dollar since President Maurico Macri lost a primary election vote.

  • The Central Bank of Argentina has set a limit of five days to change cash in a foreign currency. Institutions must receive permission by the central bank to buy dollars in the foreign exchange market, with the exception of foreign trade. Individuals can exceed the $10,000 limit but will need authorization from the central bank.
  • The new measures will take effect Monday, and are expected to last for the rest of 2019.
  • Argentina is also looking to defer debt payments to the International Monetary Fund. Argentina has defaulted on repayments to its bond investors five times in the last 30 years and spent years locked in litigation with hedge funds seeking repayment.
  • In a Sunday bulletin, President Macri’s administration called the restrictions "a series of extraordinary measures to ensure the normal functioning of the economy, to sustain the level of activity and employment and protect the consumers."
  • Roughly $3 billion of Argentina’s foreign currency reserves was spent Thursday and Friday alone, as Macri’s government tried to repay short-term debt and protect the value of the peso. Argentina’s net reserves stand at just under $15 billion; at this pace, it would all be spent within weeks.

Key background: Investors cheered the election of pro-reform, pro-business Macri as marking a break with the combative and turbulent era under presidents Nestor Kirchner and Cristina Fernández de Kirchner.

  • However, Argentina’s economy slumped by 2.5% last year; in the first quarter of 2019, it shrank by a further 5.8%. It also has one of the world’s highest inflation rates, clocking in a 22% during the first half of 2019. According to the BBC,3 million people in Argentina have fallen below the poverty linesince 2018.
  • A recent vote showed his government would be likely ousted in October elections, sparking a rout of international and local investors.
  • Argentina's record of financial crisis had led to many in the country storing savings in dollars, or for the wealthy with banks in neighbouring Uruguay and beyond.
  • Casa Rosada's, the home of Argentina's presidents, has a long history of tackling economic problems with currency controls. This has created a bustling black market for "blue" dollars, where illegal exchanges could net up to 30% more than the central bank's official rate.