Argentina Tightens Capital Controls Ahead of Midterm Vote
Regulators are tightening screws on blue-chip operations, where investors buy assets in pesos and sell them abroad in dollars.
(Bloomberg) -- Argentina’s central bank is making it harder for investors to buy dollars as the already draconian capital controls fail to stop the gap between the official and parallel exchange rates from widening.
Regulators are tightening the screws on operations where investors buy assets in pesos and sell them abroad in dollars to obtain foreign currency. The measures, aimed at money laundering and tax evasion, were announced late Thursday.
It’s the latest set of controls to prevent dollars flowing out of Argentina’s crippled economy. The measures have spawned a series of parallel exchange rates where the Argentine currency trades at a weaker rate to the official one. Regulators are trying to stop that breach widening ahead of midterm elections in November as a stable currency is seen as key to the coalition’s election success.
The new controls on the so-called blue-chip market “is bound to fail like it did in 2020,” Juan Manuel Pazos, TPCG Valores SA chief economist, wrote in a note. “Controls, like taxes, follow a Laffer curve. Once you’re past the optimum point, additional controls tend to have the opposite effect than what’s planned.”
Long History
The central bank started to impose capital controls even before President Alberto Fernandez came to power in December 2019 as the nation headed for a default on its foreign debt.
Argentines can only exchange pesos for $200 a month at a bank and must pay two taxes on top of that.
Authorities increased the limits to blue-chip swap operations last month, limiting the amount of bonds that traders can sell on open, regulated platforms. As a result, broker demand for dollars has moved to the OTC market.
The new exchange rate is now starting to stray away from the blue-chip that trades on open platforms and that traders can see on their screens. On Thursday, the peso traded at 178.5/USD on the OTC market, 4.2% weaker than on the open platforms.
Dollar demand at banks is picking up as inflation accelerates above 50% and speculation mounts that the central bank will allow a faster depreciation of the official exchange rate after the elections. About 443,000 individuals bought dollars in June, up from 304,000 in May, according to the latest central bank data.
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