Makes no cents

Argentina implements new currency controls spooking savers, corporates and investors.

Last Tuesday, the Banco Central de la República Argentina announced new currency control measures that will hit millions of small savers and corporates alike. The peso dropped 10% and many banks temporarily suspended currency purchases to adapt to the rules.

The new measures include an additional 35% tax on USD purchases for retail savers and USD purchases on credit cards, on top of the 30% PAIS tax. Individuals in Argentina had been buying USD at a record pace in recent months to protect themselves from inflation (40% year-on-year) and the depreciation of the peso (year-to-date being 20% on the official exchange and 45% in parallel). “The underlying problem is that Argentina has never had a sustainable development plan. Imports are growing more than GDP and considerably more than exports, so the generation of foreign exchange is zero and the loss constant,” explained a seasoned economist in Latin America.

“The underlying problem is that Argentina has never had a sustainable development plan.”

Seasoned economist in Latin America.

The government had hoped that the recent restructuring of the country’s debt would bring a return of confidence that would stop the loss of foreign exchange, but this didn’t happen. “In one-year, net liquid reserves fell from almost USD 20 billion to practically zero, there are many explanations, but everything ultimately comes down to a loss of confidence.”

Individuals weren’t the only ones targeted by the new measures. New capital controls were also placed on companies: one measure forces businesses, with over USD 1 million in debt payments per month, to present a plan to refinance 60% of it so that only the remaining 40% is payable in USD. An additional measure seeks to limit share transactions as a route to obtain foreign currency. Foreign and national companies are going to feel the impact and it will be worse for national companies according to an economist and former government official, “Foreign companies may accept the loss and leave (for example, LATAM Airlines and Falabella) but national businesses have no way to escape. Many companies will not be able to access the dollars needed to repay their loans and will default or find it hard to get additional dollars for future investments.”

“Many companies will be considering leaving [Argentina], in addition to those that have already left.”

Economic journalist in Argentina.

An economic journalist in Buenos Aires has a bleak outlook for the country, “We will not see foreign investment for a long time, and many foreign companies will surely be considering leaving, in addition to those that have already left.”

If you’re exposed to Argentina, we can help you navigate this challenging environment.

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