Argentina to Consider Easing Capital Controls After Debt Deal
Argentina to Consider Easing Capital Controls After Debt Deal
(Bloomberg) -- Argentina may consider easing the country’s ultra tight capital controls once it finishes negotiations with bondholders to restructure its debt and coronavirus uncertainty clears, Economy Minister Martin Guzman said.
The government acknowledges the need to relax the controls over its currency markets as a way to promote economic activity, Guzman said in an interview, declining to give any time frame when such a change may take place. A successful debt renegotiation and more clarity after the global coronavirus pandemic are necessary before Argentina can consider such a move, he said, suggesting a revision of the controls is unlikely to happen anytime soon.
“It’s our intention to ease the capital controls, to move to capital account regulations that are more appropriate for economic development,” Guzman said in an interview Wednesday. The debt restructuring is “a necessary condition to be able to alleviate the capital controls.”
Argentina’s previous administration brought back capital controls in September after a rout led the peso to drop over 50%. That brought the parallel blue-chip swap rate back into popular use for both locals and investors looking to buy greenbacks to protect their savings. At 120 pesos per dollar, the rate is almost double the official exchange rate of 67 pesos per dollar.
While Guzman emphasized increasing Argentina’s foreign reserves has to precede easing controls, he declined to name a number that would qualify for lifting any measure. The country forecasts foreign reserves rising to $50 billion by the end of the year from $43 billion, according to an April 9 document released earlier this week. It ultimately sees reserves reaching $77 billion by 2030.
Parallel Rates
In the past, a wide gap between exchange rates has hindered Argentina’s exports, hurt growth and boosted inflation that’s already running above 48% annually. As the gap between the spot peso and the parallel peso gained over past weeks, the central bank and the securities regulator tightened controls on businesses and enhanced oversight of brokers, a move many interpreted as a way to deter dollar purchases.
READ: Argentina’s Currency Clampdown Has Echoes of the Bad Old Days
Guzman said that the government closely follows the gap between both rates, which widened as much as 53% on May 1, and that he saw it as a reflection of the country’s macroeconomic “fragilities.” The 37-year-old minister added that the current controls aren’t part of the framework for long-term sustainable economic growth in Argentina. Still, the global pandemic makes it tougher to determine the time when they’ll be unwound, he added.
“Argentina has to be resilient enough to ease capital controls,” Guzman said. “In the context of Covid-19, it’s very hard to make an assessment of what will be the optimal timing, there are many factors.”
The government sees the economy contracting 6.5% this year, according to the April 9 presentation. He added that in an optimistic long-term outlook, it sees growth of 1.7% per year. Looking beyond the pandemic, he said the country will need policies to boost competitiveness and productivity, and that it’s assessing the effects of the virus on key sectors, like energy. He declined to give forecasts for unemployment as a result of the virus.
“In the end, the country needs to have a three-pronged approach that allows job creation, increase in productivity and macroeconomic consistency to produce foreign revenues that avoid the country to fall into recurrent balance of payment crises,” he said. “The recurrent pattern of booms and busts in something we need to end.”
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