MercoPress. South Atlantic News Agency

Two year capital flight from Argentina reached 43.1 billion USD

The budget misbalance and quick depreciations of the Peso is causing concern.

Argentina’s flight of capital remains steady having reached 5.5 billion US dollars in the second quarter of the year, 11.2 billion in the first half and 43.1 billion US dollars since the second quarter of 2007, when the first signs of the global crisis, according to the latest data from the Argentine Central Bank.

However it has been below the peaks of the second quarter of 2008, when the farmers’ conflict with the Argentine government was at its highest point and at the end of last year when the Kirchner administration took over the private pensions’ savings funds.

The Central Bank also points out that some of the flight has been into hard currency deposits and “local corporations are using those funds to pay for the running of their businesses but from foreign accounts”.

Local economists point out that the deterioration of fiscal accounts, particularly the budget, and the possibility of a faster devaluation to help compensate the lack of revenue is making savers and companies put their monies in hard currency.

A recent report from an economics advisor Econometría argues that the main factors behind the flight of capital are “the impressive deterioration of the fiscal surplus in combination with the lack of access to international money markets”.

A faster devaluation of the Peso could comply with both objectives at least in the short term: increase revenue in pesos from farm taxes, and at the same time water down expenditure with inflation.

“Not knowing how the imminent fiscal adjustment will be is the main factor encouraging the flight of capital”.

Another economics analyst centre Prefinex also believes that people fear the government will begin printing money to cover the fiscal deficit, which leads to a devaluation of the Peso and capital flight.

Econviews points out that the link between capital flight and a poor fiscal situation also worked inversely: lack of confidence encouraged capital flight which then generated less activity, less revenue and less fiscal abundance. However to stop the flight of capital “it is essential to cut government spending; this will reduce devaluation expectations and fiscal problems”.