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Argentina's dollar clamp intensifies following on Sunday's election results

Thursday, October 29th 2015 - 06:39 UTC
Full article 11 comments
Currency market traders said the central bank called commercial banks with a verbal directive to slash daily limit on dollars' transfers to $75,000 Currency market traders said the central bank called commercial banks with a verbal directive to slash daily limit on dollars' transfers to $75,000
“It's a new move that intensifies state controls on the currency. It will have an impact, in particular on importers,” said one of the traders. “It's a new move that intensifies state controls on the currency. It will have an impact, in particular on importers,” said one of the traders.
Argentina's gross foreign reserves officially stand at $27.1bn but economists estimate that net reserves amount to about half that. Argentina's gross foreign reserves officially stand at $27.1bn but economists estimate that net reserves amount to about half that.

Argentina on Tuesday halved the daily amount of dollars companies can transfer abroad without authorization, currency traders said, while the country's insurance regulator put new limits on the amount of hard currency assets insurers can hold.

 The moves appeared to stem from the opposition's success in forcing Sunday's presidential election to a run-off vote, which could add to pressure on the central bank to shore up the Peso currency as net foreign reserves run precariously low.

There was no official release and currency market traders said the central bank had called commercial banks with a verbal directive to slash the daily limit on dollars that a single company can transfer outside Argentina to $75,000 (from 150.000) without previous authorization.

“It's a new move that intensifies state controls on the currency. It will have an impact, in particular on importers,” said one of the traders. It was not clear how long the measure would remain in place.

Argentina's dollar crunch has its roots in a legal battle with U.S. creditors over unpaid debt stemming back to its 2002 default on $100 billion dollars that left the country all but locked out of global debt markets.

Outgoing President Cristina Fernandez' government has increasingly had to rely on its reserves to prop up the peso currency, pay for energy imports and meet debt obligations. In 2011 she imposed capital controls and her populist government has incrementally turned the screws as reserves run lower.

Argentina's gross foreign reserves apparently stand at $27.1 billion but economists estimate that net reserves amount to about half that. Much of it with help from Beijing central bank's swaps.

In a resolution published in the government gazette, meanwhile, Argentina's insurance regulator ordered insurers to adjust their foreign currency security holdings to equal the value of foreign currency contracts they hold.

Insurance companies tend to hold dollar-denominated or dollar-linked bonds. By forcing the adjustment, the regulator is requiring them to sell at least some of those bonds and hold pesos instead, putting the dollars back into the system.

Last month, in a similar move, Argentina's market watchdog ordered mutual funds to value their holdings of dollar-denominated bonds at the inflated official exchange rate, rather than against the so-called “blue-chip” swap rate. That led to a sell-off in securities, temporarily helping to stabilize the black market rate.

Currency traders on Wednesday quoted the 'blue' market rate at 15.90 per dollar compared with the official rate of 9.530. During afternoon trading the dollar reached 16.10 Pesos, but then fell back.

Categories: Economy, Politics, Argentina.

Top Comments

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  • Papamoa

    Any new government taking power in argentina will instead of seeing a pile of cash in the central bank will see a pile of IOU`s signed by Christina to the value of 27 billion dollars.

    Oct 29th, 2015 - 10:13 am 0
  • ChrisR

    @ 1 Papamoa

    Damn, you beat me to it!

    It makes me wonder WHY the Kirchner Club want to be in power with things as they are?

    Oct 29th, 2015 - 11:10 am 0
  • ElaineB

    @2 I don't think they wanted to be in the front line - Scioli can take the direct fire - but they don't want to be cast out to a place where they can be prosecuted. I think they expected to sweep in, meddle a bit and then when the shit hits the fan, CFK to waltz back in as the saviour.

    Oct 29th, 2015 - 11:55 am 0
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