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Currency Controls Strangle Argentina, But Hey, “Take it up with the Next Government, We’re on Our Way Out”
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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Macau’s Economy Blows Up
Macau’s Economy Blows Up
China’s crackdown on corruption, or at least the ostentatious display of the spoils of corruption, and its selective hunt for corrupt officials, which to some observers resembles a political purge, may or may not tamp down on actual corruption, which is what greases the wheels in the Chinese economy. But it’s certainly doing a number on Macau.
Macau is the only place in China where Chinese can legally gamble away their wealth without having to resort to the stock market or other schemes. It’s also a convenient place where they can circumvent China’s currency controls to siphon money out of China and send it to “safe havens,” such as over-priced homes in the most expensive trophy cities in the US near the peak of US Housing Bubble 2.
Until February 2014, Macau was on an awesome ride that had kicked off in 2001, when it permitted foreign casino operators to build gambling palaces. In 2002, Macau became the number one gambling destination in the world. Even during the Financial-Crisis, Macau’s gaming revenues rose nearly 10%. These endlessly soaring revenues were a thermometer into China’s economic boom.
So in its crackdown on corruption, China is hitting Macau in both departments: scaring high-rollers away and monkey-wrenching its capital-controls evasion machinery. And this year, Macau has taken a third blow: the deteriorating economy in mainland China.
As a result, Macau’s real GDP plunged 24.5% in the first quarter year-over-year and then went ahead and plunged an even more terrible 26.4% in the second quarter, to 77.5 billion Macau patacas ($9.7 billion), the lowest level since early 2011.
The Statistics and Census Service (DSEC) in its report today blamed “exports of gaming services,” as it calls gambling revenues that had plunged 40.5% year over year, and “exports of other tourism services,” which had plunged 21.5%. “Total exports of services” crashed by 35.9%.
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