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Argentina introduces currency controls to support the economy



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AFP

Argentina has introduced currency controls in an attempt to stabilize markets as the country faces a deeper financial crisis.

The government will restrict purchases of foreign currency following a sharp fall in the value of the peso.

Businesses will have to seek the central bank's permission to sell pesos to buy foreign currency and to transfer abroad.

Argentina is also seeking to defer debt payments to the International Monetary Fund (IMF) to deal with the crisis.

What has the government said?

In an official bulletin published on Sunday, the government said it was necessary to adopt "a series of extraordinary measures to safeguard normal economy, to maintain activity levels and employment and protect consumers".

The central bank said the measures were intended to: "maintaining currency stability".

It also said that although individuals can continue to buy US dollars, they must seek permission to buy more than $ 1

0,000 (£ 8,223.50) a month.

The measures will apply until the end [19659013] Is this the end of Macri's vision for Argentina?

  • Argentina's Minister defends peso amid standard risk
  • What triggered the current crisis?

    Argentina has struggled with a financial crisis, which was exacerbated by the president's defeat in a recent primary investigation.

    The peso fell to record lows last month after the poll showed that the business-friendly government of President Mau Ricio Macri is likely to be exhausted by elections in October.

    Mr Macri was elected in 2015 on promises to boost Argentina's economy with a series of liberal economic reforms.

    But the country is in a deep recession. It has one of the highest inflation rates in the world, rising by 22% during the first half of the year.

    Argentina's economy contracted 5.8% in the first quarter of 2019, after shrinking 2.5% last year. Three million people have fallen into poverty in the past year.

    How is it likely that the move will be received?

    Ordinary Argentinians have traditionally had little faith in their own currency, preferring to convert reserve pesos to dollars as soon as they can.

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    They do not trust financial institutions much, so they resort to what is known locally as "colchón bank" – that is, to fill their dollars under the mattress.

    Anecdotal stories abound of people keeping money buried in the garden, hidden in the walls or even stuffed into heating systems – sometimes with disastrous consequences if there is an unexpected cold snap.

    When you consider Argentina's history of rampant inflation and currency, they no doubt have a point.

    But that means that any restrictions on people's ability to buy dollars have a huge psychological impact.

    How does this compare to pre-vicious crisis measures?

    The $ 10,000 ceiling for dollar transactions is absolutely generous compared to previous actions.

    People still have bad memories from the "corralito", imposed in 2001, which stopped all withdrawals of dollars from bank accounts for a full year.

    The only serious attempt to wean Argentinians off their dollar dependency dates back to the 1990s under President Carlos Menem, when the peso value was set by law to parity with the dollar.

    But it put the economic system under severe strain, leading to the economic meltdown 2001-02.

    How bad can Argentina's crisis be?

    The country struggles to fend off its fifth debt payment in 30 years.

    said it would seek to restructure its debt with the IMF by extending its maturity. This would give the country more time to repay the money owed to the IMF.

    Rating agencies, including Standard & Poor's and Fitch, determined that it constituted a standard and downgraded the country's credit ratings.

    No matter what happens in Argentina, the risk of financial pollution is small, analysts say.

    Even in the rest of Latin America, markets are unlikely to suffer. The US-China trade war and the slowdown in global growth are much more of a threat.


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