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Argentina eases public`s access to dollars

Argentina,Argentina economy,Argentina access to dollars, Buenos Aires,peso

Argentina eased unpopular restrictions on its citizens buying dollars Monday, after allowing the peso to plummet in value last week in a bid to stem capital flight.

The peso held its value in early trading Monday at a little over eight to the dollar, the financial website said, as the new policy softened controls in place since 2011.

Buenos Aires kept a $2,000 monthly limit on hard currency its citizens will be allowed to purchase.

Jorge Capitanich, head of President Cristina Kirchner`s cabinet, told a news conference that large businesses and investors will be remain barred from the hard currency purchases.

Instead, he said, permission to purchase dollars will be restricted to "salaried workers, professionals, self-employed workers and small business owners," who earn more than $900 (7,200 pesos) a month.

Sales are also limited to 20 percent of earnings, according to AFIP, the national tax agency, which must approve the transactions.

If their request is approved, he said, they will be given access to the dollars after 72 hours.

Capitanich said the government has reversed a decision announced last week to lower a surcharge on credit card purchases abroad and dollar purchases for foreign travel from 35 percent to 20 percent.

That surcharge now will remain at 35 percent, he said.

With the measures, the government is attempting to reinstill confidence amid high inflation and capital flight that has sharply eroded Argentina`s international reserves.

"The government opened a window. It is a big and risky bet. Reserves are still strong. But if reserves don`t increase, it will have to take more restrictive measures," said Dante Sica, an anlayst with consulting.

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.

Last week`s decision to ease access to dollars was made after the Argentine peso suffered its worst single-day fall in more than a decade.

The currency turmoil in Argentina and other emerging countries sent shock waves through world financial markets last week worried about the global impact of China`s slowing growth.

Since the beginning of the year, the peso has lost about a fifth of its value, and the measure was seen as a bid to halt that precipitous slide by boosting confidence in the economy.

The recent economic upheaval comes 12 years after Buenos Aires roiled financial markets by defaulting on nearly $100 billion in bonds, unleashing a tidal wave of capital flight and runaway inflation.

Argentines remain traumatized by the 2001 collapse, which wiped out the savings of millions of people from the middle class and saw the end of the peso`s fixed exchange rate to the dollar.

Officials said this week`s currency market changes, which are a de facto devaluation of the peso, are being put in place to avoid a repeat of that fiasco.

Capitanich told reporters last week that in the opinion of the government, the exchange rate has reached an acceptable level" of about eight pesos to the dollar under a policy of "managed flotation."

Early trading on Monday showed that the peso was holding steady at that rate, and was trading on the black market at about 11.7 pesos per dollar.

Managing the currency has driven down the central bank`s foreign currency reserves to $29.5 billion last week from $52 billion in 2011.

The devaluation will likely exacerbate inflation, which was running at 26 percent last year, according to private sector estimates.

Continued inflations at that rate could lead to more capital flight, as Argentinians seek a safe harbor for their hard-earned savings.

This could in turn stall already-slow economic growth and spill over into government finances, because of the state`s costly spending to subsidize imported consumer items like fuel.

The looser foreign exchange controls were put in place Monday in the absence of Kirchner, who is in Cuba for a two day summit of Latin American and Caribbean states that begins Tuesday.

From Zee News

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