Argentine peso plunges as dollar controls lifted

GMT 08:12 2015 Friday ,18 December

Arab Today, arab today Argentine peso plunges as dollar controls lifted

The Argentine peso lost 30% of its value after the new pro-business government scrapped
Buenos Aires - AFP

The Argentine peso lost 30 percent of its value against the dollar Thursday after the new pro-business government abruptly scrapped foreign exchange restrictions introduced by its leftist predecessors.

The sharp devaluation came a day after the government ended four years of currency controls that propped up salaries and domestic producers in Latin America's third-largest economy.

At the close of trading on the first day without the currency limits, dollars were changing hands for 14 pesos, up from a closing rate of 9.84 pesos on Wednesday.

The dollar had briefly surged by more than 52 percent to 15 pesos at the start of trading.

President Mauricio Macri's opponents said easing the limits on dollar transactions and the fixed exchange rate would hurt ordinary Argentines' spending power.

But Macri says the readjustment will boost exports and the wider economy.

Reactions were mixed on the street in the politically divided country.

"It is a deep devaluation but it is necessary," said Rosa Menendez, 50, an administrator in Buenos Aires.

But shoe shop owner Guillermo Suarez warned: "These measures will harm consumption and national industry."

- Permit-free exports -
Macri narrowly won a run-off presidential election last month, promising deep reforms for Argentina, which is facing a possible recession next year.

Finance Minister Alfonso Prat-Gay told journalists on Wednesday the country was "normalizing" after years of forex controls which he said "drowned the economy" under left-wing president Cristina Kirchner.

Elected in 2007 following the death of her late husband Nestor, she imposed the restrictions in 2011 in a bid to stop capital flight and tax evasion.

But four years on, they were hurting exporters, denting productivity and distorting the economy.

Prat-Gay said the complex system of foreign exchange limitations for companies and individuals was scrapped, with a single exchange rate determined by the market.

"Whoever wants to export will be able to export without a permit, whoever wants to import will import," he told a press conference.

"Whoever wants to buy dollars will be able to buy them, whoever wants to sell them will be able to sell them, and nobody will come after you."

Prat-Gay said the central bank would intervene by buying or selling dollars if necessary to avoid sharp changes.

Companies and individuals can buy up to $2 million a month with no restrictions, he said. The previous limit was $2,000 a month.

Prat-Gay, a former Wall Street banker, is one of a team of largely US-trained officials appointed by Macri, who has vowed to mend Argentina's relations with Washington and other powers.

- Price-hike warning -

Economist Nicolas Dujovne told AFP the scrapping of the controls would be considered a success if the dollar reached the recent market level of between 14 and 15 pesos without driving consumer prices too high.

Argentina is in a painful economic slowdown, with inflation forecast to come in at more than 25 percent this year and more than 35 percent next year in case of a devaluation.

The International Monetary Fund forecasts the economy will contract next year.

Analysts estimate that the price of a sample basket of basic goods has risen by up to 60 percent in recent weeks.

"There was not much room to keep putting off this decision," said consultancy Ecolatina in a report.

On Monday, the new president kicked off his reforms -- dubbed "Macrieconomics" in Argentina -- by eliminating or cutting a string of taxes on agricultural and industrial exports.

In central Buenos Aires on Thursday, illegal street money-changers who have thrived over recent years of currency controls continued selling dollars for about 14.2 pesos.


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