MercoPress. South Atlantic News Agency

Argentine market cautious reaction to new rules on foreign exchange and dollar savings

Capitanich and Echegaray explaining the new rules for purchasing dollars

In what promises to be a week of surprises as the Argentine government unfolds measures to contain the price of the US dollar, this Monday the peso held relatively stable after last week's sharp devaluation. While the official rate remained unchanged at 8.01 Pesos for a greenback, in the parallel market it climbed to 12.15 Pesos.

 The relative stability was based on expectations following the announcement that Argentines could swap Pesos for up to 2,000 dollars each month at the official rate, but large businesses and investors will remain barred from the hard currency purchases, said Jorge Capitanich, head of Cristina Fernandez cabinet.

Capitanich was accompanied at the press conference by Ricardo Echegaray, head of the tax office. However Minister Axel Kicillof did not attend.

Permission will be restricted to “salaried workers, professionals, self-employed workers and small business owners,” who earn more than $900 (7,200 pesos) a month, and the amount permitted will be tied to the person's earnings with the 2.000 cap.

Sales are also limited to 20% of earnings, according to AFIP, the national tax agency, which must approve the transactions. Furthermore the dollars for savings must be deposited in a bank for 365 days, and any withdrawal will be subject to a 20% additional cost to the original purchase.

Argentina's official dollar rate held at 8.01 to the dollar Monday, level with which it stood Friday, amid reported support by the Central Bank of Argentina. In the parallel of blue market the dollar climbed 45 cents to 12.15 Pesos but trading was minimum. Meanwhile, after sinking last week, the Buenos Aires stock exchange rebounded for a 1.1% gain on Monday.

The market and public were nevertheless on watch to see if the new exchange regime would work, and whether the government would follow it up with more policy revisions.

The government reversed itself on one move announced last week: that the 35% surcharge on credit card purchases abroad and dollar purchases for foreign travel would remain in place. Earlier the government said it would be cut to 20%.

Defending the peso has cost the central bank dearly over the past three years. The country's foreign reserves fell to below 29.5 billion dollars earlier this month from 52 billion in 2011. On Monday trading with the new system the bank had a net loss of reserves of 100 million dollars.

From the opposition and acknowledged economists have warned that even if the Peso stabilizes, the government needs to get inflation, running at around 26 percent a year, under control to stop Argentines from converting all their savings into dollars. “This means fiscal and monetary support plans”.

Economist Rodrigo Alvarez said it was unlikely that the easier access to hard currency will lead to an end in black market trading. “We will continue to have parallel markets,” he said.

“Everything depends on what happens once the spigot of dollars is opened, and that's barely begun,” he said.

Former Central Bank chief Martín Redrado harshly rejected the relaxation of currency controls by the government saying that “to inflationary policies the government is now adding foreign exchange improvisation”.

”In the short term the government must generate policies to raise the dollar offer. This crisis will be solved boosting the currency offer. It is difficult to raise the offer of dollars with improvisation, with steps forward and steps backwards.”

“Argentina has got the capacity to raise the amount of dollars with a plan” concluded Redrado.

So far the year, the US currency has accumulated a 22.8.% rise.