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Argentina relaxes controls on US dollars after sharp drop in value of local peso

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BUENOS AIRES, Argentina - Argentina is relaxing restrictions on the purchase of U.S. dollars following a sharp, sudden slide in the value of the local peso, the government said on Friday.

Argentines will be able to buy dollars for savings starting on Monday, reversing a ban imposed in 2012, and the surcharge on money exchanges will drop as well.

The action also effectively erases a requirement for tourists to get government approval for money they need to travel abroad.

But the brief announcement by Cabinet Chief Jorge Capitanich made no mention of the many other restrictions imposed over the past three years. The measures were meant to stem the flood of dollars out of the country, but many economists say they undermined confidence in the peso.

With foreign reserves slipping to their lowest level in seven years, the government held back from spending more hard currency to support the peso on the official exchange market on Wednesday and Thursday. As a result, the peso tumbled 16 per cent against the dollar, falling to about 8 to 1. It had been 4.4 to 1 or better when the government began imposing a series of restrictions in 2011.

Capitanich said the government acted Friday because the price of the dollar "has reached a convergence level that is acceptable for the objectives of our economic policy."

But the gap between the official and black market exchange rates remained stark. People forced to the black market were paying 13 pesos per dollar Friday. Those who buy legally — and reporting transactions to tax authorities — were paying 7.75.

Capitanich also announced that the surcharge collected at the time of the exchange and on credit and debit cards abroad also will fall to 20 per cent from 35. The money can be recovered later with a signed tax statement.

Purchases on the legal market, though, still must be in line with the income a person has declared to tax authorities. And many Argentines say that most of what they consider legitimate requests for dollars are refused or delayed.

Argentina has been kept from global credit markets since defaulting on its debt during its 2001-2002 financial crisis. So officials have been trying to keep dollars in the country to meet government debt obligations and finance infrastructure programs.

The controls had made it increasingly difficult to legally trade pesos for dollars, so many Argentines had turned to black market money changers to obtain greenbacks.

Economists say the effective devaluation this week will feed inflation already running at near 30 per cent a year.

"These policies mean that everyday Argentines are getting poorer as rising inflation and a weaker domestic currency erodes disposable income in both local currency and in dollars," said Alberto Ramos, who analyses the country for Goldman Sachs.

He said the government's maverick financial policies had led to "very high inflation, eroding fiscal stance, declining trade surplus, misaligned currency, distortions in relative prices due to widespread subsidies, etc."

The imbalances, in turn, put pressure on both the official and unofficial exchange rates and on the central bank's reserves.

"The government does not have any alternative than let the currency adjust," Ramos said.

Argentines are haunted by memories of the financial crisis, when banks froze deposits and the currency lost value, so they have been eager for dollars to stash in vaults or even under their mattresses in case of an emergency.

Helped by heavy government spending, Argentina's economy grew by about 7 per cent a year in many recent years. Officials projected 5.1 per cent growth last year, though independent analysts said it was actually less than 3 per cent.


Associated Press writer Luis Andres Henao in Santiago, Chile contributed to this report.

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