Argentina’s latest crackdown on dollar purchases exposed a split between the nation’s top policy makers as they struggle to find a way back from the deepest crash on record. Argentina’s dollar bonds extended their drop on Thursday, two days after Central Bank chief Miguel Pesce tightened already-strict currency controls.
According to Bloomberg, Pesce wanted to ban savers from buying any dollars at all, while Economy Minister Martín Guzmán opposed the idea, according to four people with direct knowledge of the matter. Ultimately, they reached a compromise after meeting with President Alberto Fernandez early last week.
With no clear plan to pull the economy out of a deep three-year recession, the government is trying to cling on and protect Argentina’s dwindling dollar reserves at least until the soy harvest starts in March, when rising agricultural exports boost dollar receipts, according to two people with direct knowledge. Guzmán had previously voiced his opposition to tighter controls, saying he favored “‘normalization” of Argentina’s currency markets.
The government’s economic team is also split over how long the curbs should stay in place. Some view the new controls as indefinite, while others want them to be temporary solutions, the people said. Only one of the measures, aimed at company debt in foreign currency, has a set expiry date, for the end of March.
A central bank spokesman denied that there’s any division with the economy ministry, and said the policy was coordinated between the leaders of the economic team. The economy ministry didn’t reply to a request for comment. The latest controls include a new tax for savers buying greenbacks. The government is also forcing companies with more than $1 million in monthly capital debt payments through March to restructure or defer part of those obligations.
The measures ended a period of relative calm in the turbulent economy, two weeks after a debt restructuring that was intended to restore some investor confidence in Argentina following the nation’s ninth default.
“There’s a high degree of unease in terms of investors looking at the country, and companies operating in the country,” said Jimena Blanco, director of Latin America research at consulting firm Verisk Maplecroft in Buenos Aires. “All of these policies are actually discouraging investment.” The bleeding of dollar reserves is a recurring fear for Argentine governments. In 2011, the government of Cristina Fernandez de Kirchner tightened the rules for individuals seeking to buy dollars.
Alberto Fernandez criticized the controls around that time, saying they were an attack on personal freedom. But now, as president, and with international reserves at $42.5 billion, close to a three-year low, he is implementing a similar policy himself. On Aug. 15, Fernandez publicly floated Pesce’s idea of cutting savers off entirely from buying dollars. About 4 million Argentines purchased dollars in the official market in August, a record high, according to a senior official.
The currency curbs, which are meant to stem an outflow of dollars, come on top of other existing economic restrictions, such as a ban on firing workers and a 30% tax on any purchases not made in pesos.Argentina’s economy is forecast to contract 12% this year, according to the government’s recently-published budget proposal.