MercoPress. South Atlantic News Agency

Argentine central bank has lost 17% of reserves since the ‘dollar clamp’

Between October 2011 and June 2013, the central bank loss was 9.2bn dollars says R&E

Argentine central bank international reserves dropped 17% since the government of President Cristina Fernandez imposed the ‘dollar clamp`, first limiting operations in the US currency and later savings in greenbacks. While this happened in Argentina in other regional central banks, international reserves kept climbing, according to a report from consultants Economia&Regiones (E&R).

This was the case for Uruguay, reserves up 74%; Peru, 47%; Chile 27% and Brazil 19%, says the report, and this happened despite the strict foreign exchange restrictions implemented by Argentina.

“Although the dollar clamp helped to reduce the outflow of capital, the Central bank is losing reserves at an ever increasing rhythm” adds the document.

The loss of reserves was actually 9.2 billion dollars equivalent to 19.4% between 28 October 2011, when the first restriction, (supervising all US dollar purchase requests) until this month, according to the central bank.

E&R argues that the loss of reserves increases because the foreign exchange current account worsens: 59% can be attributed to the falling trade surplus and 35% to the deterioration of the services accounts, mainly tourism.

“The loss of reserves is the final manifestation of an economic disease faced by our economy, which are the inconsistencies of economic policy” says the diagnosis.

E&R recalls that the dollar clamp became increasingly stricter and that from May to August 2012, “twelve measures were implemented which made it even harder to obtain dollars and the gap between the official rate and the parallel or blue rate doubled with impact on the level of activity and creation of new jobs”.

“Barriers on imports and the dollar clamp modified private consumption and investment patterns, with a negative impact on aggregate demand and the level of activity”.

The report adds that growth rate became tepid and GDP expanded only 1.2% in 2012, with unemployment up to 7.9% in the first quarter of 2013: “currently Argentina has the highest unemployment rate in the region”.

The central bank report shows that 2.844bn dollars in international reserves were lost in the first quarter of 2013, which compares with an increase of 915 million dollars in the first quarter of last year and a loss of 891 million in the same period but of 2011.

“In 2012 reserves were down 6.7% (3.086bn dollars). In the first quarter of this year they dropped 6.6%, accumulating a total loss of 10.8% so far this year” says R&E.

The consultant argues that the dollar clamp really only attacked one of the problems, the outflow of hard currency, which helped the erosion of reserves but did not attack the main problem.

E&R concludes that Argentina’s international reserves are falling and will continue to fall as long as the same economic policy remains” anticipating that since tourism continues to erode reserves, it should not come as a surprise if the government of President Cristina Fernandez implements a further tax on credit card spending abroad or some other contention mechanism”.