Argentina lifts restrictions on buying U.S. dollars, putting economy on new path

BUENOS AIRES, Argentina -- Argentina lifted deeply unpopular restrictions on buying U.S. dollars Wednesday, aiming to put an end to a byzantine monetary system that made it difficult for businesses to operate and spawned a booming black market.

See Full Article

The move, a campaign promise of new President Mauricio Marci, was outlined by Finance Minister Alfonso Prat-Gay. The decision, combined with the lifting of export taxes on many agricultural products announced earlier this week, will expose Latin America's third-largest economy to international market forces in ways not seen for a dozen years.

"This system choked the economy for the last four years," Prat-Gay said at a news conference that was broadcast live Wednesday night. "We are now returning to normal."

Attempting to shore up dwindling foreign currency reserves, the preceding administration of President Cristina Fernandez instituted restrictions on buying foreign currency in 2011. It was one of many protectionist policies instituted during 12 years of governments led by Fernandez and her late husband and predecessor as president, Nestor Kirchner.

Argentines who wanted to buy dollars, a common practice in a South American country with a long history of financial meltdowns, had to meet several requirements. And most were limited to a few hundred dollars a month -- when U.S. currency was available in banks.

The limits, locally called a "cepo," or "clamp," led to dual exchanges rates. Over the last year, while the official exchange rate was fixed around 9 Argentine pesos to the dollar, on the black market a dollar fetched as much as 16 pesos.

Businesses, especially those needing to deal in dollars, were deeply affected. While the Fernandez administration insisted that dollars coming into the country trade at the official rate, getting dollars out at that rate, if at all, proved difficult.

"The 'clamp' killed the supply of dollars. It didn't stop the demand," said Prat-Gay.

While the change will be celebrated by international investors and welcomed by many Argentines, there is also much fear about a sharp devaluation of the peso, and what that might do to already soaring prices.

Annual inflation this year is estimated at around 30 per cent. Between the time Macri was elected on Nov. 22 and his inauguration last week, many businesses jacked up prices in hopes of protecting themselves against any devaluation. Other businesses, such as factories, simply shut down to wait to see what happens to the peso.

In recent weeks, economists have estimated the true value of the peso is around 14 or 15 to the dollar. For the first time in four years, that will be put to the test when markets open Thursday.

There are concerns the lifting of currency rules could lead to a run on banks by Argentines eager to buy dollars. The nation's foreign reserves are just over $24 billion, a very small amount for an estimated $600 billion economy.

Without providing any details, Prat-Gray said that to insulate against this risk, his team had been negotiating with China and several financial institutions to quickly bring in several billion dollars over the next month.



Advertisements

Latest Economic News

  • Biggest U.S. banks strong enough to withstand recession: Fed

    Economic CTV News
    In this Thursday, Nov. 17, 2016, file photo, Federal Reserve Chair Janet Yellen testifies on Capitol Hill in Washington, before the Joint Economic Committee. (AP Photo/Susan Walsh, File) Source
  • Postmedia selling Infomart division

    Economic CBC News
    Postmedia Network Canada Corp. has signed a deal to sell Infomart, its media monitoring division, to Meltwater News Canada Inc. for $38.25 million. The cash-strapped media company says net proceeds from the sale will be used to repay debt. Source
  • A new platform for Whole Foods? How deal could upend grocery

    Economic CTV News
    NEW YORK -- Seeing Whole Foods products first in Amazon searches? Breezing through the grocer's stores with an app that scans affordable fruits and seafood? Those are among the possible scenarios that unnerved the food industry last week, when Amazon announced a $13.7 billion megadeal to acquire Whole Foods. Source
  • Foreign home buyers surge 37 per cent in Montreal on growth in Chinese purchases

    Economic CTV News
    MONTREAL -- Canada's federal housing agency says the number of foreign buyers in the Montreal area surged by 37 per cent in the first four months of the year. The 236 purchases by foreigners accounted for 1.8 per cent of all real estate transactions from January to April, the Canada Mortgage and Housing Corp. Source
  • Qatar Airways seeks 10% stake in American Airlines

    Economic CBC News
    State-owned Qatar Airways is attempting to buy 10 per cent of American Airlines, a surprising move that would trigger an antitrust review by the U.S. government and carry political and trade-policy implications. American Airlines Group Inc. Source
  • Boeing plays down Bombardier dispute, still hopes to sell fighter jets to Canada

    Economic CTV News
    OTTAWA - A senior Boeing official says the U.S. aerospace giant's trade dispute with Montreal-based rival Bombardier is a "company-to-company issue." And Leanne Caret, the head of Boeing's massive defence, security and space division, still hopes to sell Super Hornet fighter jets to Canada. Source
  • Full list of 59 Sears Canada stores slated to close

    Economic CTV News
    Sears Canada will be closing stores in every province except Prince Edward Island, as the retailer slashes 2,900 jobs amid a major restructuring effort. Sears filed for court protection from creditors on Thursday, before announcing that it will close 20 full-line locations, 15 Sears Home stores, 10 outlet stores and 14 Sears Hometown locations. Source
  • Canadian retail sales top April forecasts

    Economic CBC News
    Canadian consumer spending in April was stronger than expected, which economists say lends weight to the Bank of Canada's recent suggestions that interest rate hikes could be on the way. Statistics Canada reported Thursday that retail sales for April rose by 0.8 per cent on a monthly basis to $48.6 billion. Source
  • Warren Buffett’s company buys into Toronto-based Home Capital

    Economic Toronto Sun
    TORONTO - Home Capital Group Inc. says American investment firm Berkshire Hathaway Inc. has agreed to indirectly acquire $400 million of its common shares in a private placement and provide a new $2 billion line of credit to its subsidiary, Home Trust Company. Source
  • Sears Canada cutting 2,900 jobs, closing 59 locations

    Economic Toronto Sun
    TORONTO — Sears Canada said Thursday it is seeking court protection from its creditors in order to restructure its business. The struggling retailer has piled up losses and seen its stock dive, losing more than 80 per cent of its value in the last year, despite efforts to reinvent itself at a time when more Canadians are shirking bricks-and-mortar in favour of online shopping. Source