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Continuing fallout from currency controls

by on December 1, 2011

As previously covered, the Argentine government decided a week after the national elections to restrict dollar access as a means to control capital flight. A month on, how are these controls effecting the economy?

Well, a week after taking effect, currency deposits fell 7%, and then a week later eased by ‘only’ falling 4.5%. More than $2.4 billion was withdrawn from bank accounts, and while the pace is slowing, this is probably due to people who could withdraw their money having already done so, leaving those who cannot.

The dollar-peso exchange rate, at $4.23 before the announcement, steadily rose and is now ‘stabilized’ at $4.30. The Argentine government was heavily selling its reserves to prop up the peso as to negate even stronger effects from the new measures. While the official rate is at $4.30, the informal dollar trading, measured by most reporting agencies and economic organizations, is now kept in tight fold. Of the estimated $500 million traded per day previously, only $350 million is now traded. These informal traders were inching the informal peso up to $4.79, but CFK’s right-hand man Guillermo Moreno has pressured traders, importers and exporters to bring it down to $4.40/.50.

People are clearly holding onto their money, preferably in dollars. Sadly, as predicted, the capital-flight dollar controls have ground real estate sales to a halt. This is because real estate in Argentina is bought and sold in U.S. dollars. With tightened access to dollars, the real estate market had no option but to slow down.

Still, the government is projecting a $9.5 billion trade surplus for 2012, and its tax collection rates have soared by 31.4% this year. The stricter tax code enforcement along with riding the good-time soy train helps keep propelling Argentina along despite the negative currency issues.

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