- POSTED: 27 Jan 2014 23:35
Argentina eased unpopular restrictions on dollar purchases for the first time in more than two years on Monday after allowing the peso to plummet in value last week in a bid to stem capital flight.
BUENOS AIRES: Argentina eased unpopular restrictions on dollar purchases for the first time in more than two years on Monday after allowing the peso to plummet in value last week in a bid to stem capital flight.
The peso held its value in early trading on Monday at a little over eight to the dollar, the financial website Ambito.com said.
Buenos Aires kept a $2,000 monthly limit on the amount of hard currency its citizens will be allowed to purchase, as the new policy went into effect softening currency restrictions in place since 2011.
Jorge Capitanich, head of President Cristina Kirchner's cabinet, announced the limits at a news conference.
He said large businesses and investors will be barred from the hard currency purchases.
Instead, permission to purchase dollars will be restricted to "salaried workers, professionals, self-employed workers and small business owners," provided they earn more than $900 (7,200 pesos) a month, Capitanich said.
If their request is approved, he said, they will be given access to the dollars after 72 hours.
The transactions will have to be approved by AFIP, the national tax agency, he said.
Capitanich said the government has reversed a decision announced last week to lower a surcharge on dollar purchases from 35 per cent to 20 per cent. That surcharge now will remain at 35 per cent, he said.
Economist Rodrigo Alvarez said it was unlikely that the easier access to hard currency will lead to an end in black market trading.
"We will continue to have parallel markets," he said.
"Everything depends on what happens once the spigot of dollars is opened, and that's barely begun," he said.
Buenos Aires made the announcement late last week that it was ending unpopular measures put in place in November 2011 that had restricted Argentinians' access to foreign currency to prevent capital flight.
Last week's decision to ease access to dollars was made after the Argentine peso suffered its worst single-day fall in more than a decade.
Since the beginning of the year, the peso has lost about a fifth of its value, and the measure was seen as a bid to halt that precipitous slide by boosting confidence in the economy.
The recent economic upheaval comes 12 years after Buenos Aires roiled financial markets by defaulting on nearly $100 billion in bonds, unleashing a tidal wave of capital flight and runaway inflation.
Argentines remain traumatized by the 2001 collapse, which wiped out the savings of millions of people from the middle class and saw the end of the peso's fixed exchange rate to the dollar.
Officials said this week's currency market changes, which are a de facto devaluation of the peso, are being put in place to avoid a repeat of that fiasco.
Capitanich told reporters last week that in the opinion of the government, the exchange rate has reached an acceptable level" of about eight pesos to the dollar under a policy of "managed flotation."
Early trading Monday showed that the peso was holding steady at that rate, and was trading on the black market at about 11.7 pesos per dollar.
Managing the currency has driven down the central bank's foreign currency reserves to $29.5 billion last week, from $52 billion in 2011.
The devaluation will likely exacerbate inflation, which was running at 26 per cent last year, according to private sector estimates.
Continued inflations at that rate could lead to more capital flight, as Argentinians seeks a safe harbour for their hard-earned savings, experts said.
And that could stall already-slow economic growth and spill over into government finances, because of the state's costly spending to subsidise imported consumer items like fuel.
The looser foreign exchange controls were put in place Monday in the absence of Kirchner, who is in Cuba for a two day summit of Latin American and Caribbean states that begins on Tuesday.