Currency Controls Strangle Argentina, But Hey, “Take it up with the Next Government, We’re on Our Way Out”
Running out of money doesn’t care if you’re a socialist or neoliberal.
Last week wasn’t easy for President-on-her-way-out Cristina Fernández de Kirchner. On the political front, she treated us with deafening silence following her candidates’ poor performances in the general election. But on the economic front her government was not so quiet.
Remember how Argentina’s reserves, or how much foreign currency the Central Bank holds, has been creeping lower despite foreign currency controls? Last week the Central Bank (BCRA) and National Insurance Regulator jumped back in to keep the country from running out of money for just a little while longer.
First, the BCRA raised interest rates by three percent, the highest in 18 months, to try to make holding pesos more attractive. Shockingly, not many people rushed to buy peso notes. The government sold ARS $11.3 billion, five percent less than the previous week, despite the higher rate.
Next, the Insurance Regulator passed a new law forbidding insurance companies from holding dollar assets in excess of their dollar contracts. English translation: Insurance companies whose clients are in Argentina and thus likely have peso-denominated policies cannot hold dollars even though the peso is likely to depreciate before these policies are paid. Not good news for the peso policy holder.
Importers received informal calls from their banks informing them that the automatically-approved amount they are permitted to pay providers was cut in half, from US $150,000 to US $75,000. While that might seem like a reasonable number please be advised that you can’t buy very many car parts, air conditioner blades, or other industrial input with US $75,000. This adds to the US $9.5 billion (that’s right, billion) that the Central Bank is already in debt to importers. Commerce Ministry Sub-Secretary Paula Español reportedly told importers to, “take it up with the next government – we’re on our way out.”
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