Argentina Fourth-Quarter Capital Flight Falls to $3.3 Billion on Controls

Argentine capital flight slowed from a record pace in the fourth quarter after President Cristina Fernandez de Kirchner tightened controls over the foreign exchange market and forced companies to repatriate export revenue.

Investors withdrew $3.3 billion from the economy in the October-through-December period, down from $8.4 billion in the previous quarter, the central bank said in a report today. Argentines took $21.5 billion from the country in 2011, compared with $11.4 billion in 2010.

With Argentina blocked from international credit markets since a 2001 default on $95 billion of bonds, Fernandez depends on a trade surplus to bring dollars into South America’s second- biggest economy. After winning re-election in October, Fernandez ordered energy and mining companies to repatriate future export revenue, tightened oversight of foreign exchange purchases and told insurance companies to bring investments back into the country.

“The controls were very effective and there has been a strong slowdown in outflows,” said Jorge Todesca, a former deputy economy minister, who now runs Finsoport Economia y Finanzas research company in Buenos Aires.

Unable to buy greenbacks, Argentines tapped their dollar deposits, which fell to $13.3 billion on Feb. 3 from $15.9 billion in October, according to central bank data. YPF SA, the country’s biggest energy company, said Feb. 14 it was struggling to import fuels as a result of the foreign exchange measures.

Restrictions, Measures

Fernandez introduced additional restrictions this year to further stem capital flight and a narrowing trade surplus. The government ordered importers to get permission from the federal tax agency before bringing goods into the country. Fiat Spa (F)’s local unit halted production for two days last month because of a supply shortage.

Annual inflation that economists estimate at about 23 percent, the highest among major global economies after Venezuela, and uncertainty over Fernandez’s economic policies fueled the surge in capital flight last year. Central bank reserves shrank last year to $46.4 billion from $52.1 billion. The government says prices rose 9.7 percent in January from a year earlier.

The government’s measures have allowed the central bank to buy dollars in the foreign exchange market and rebuild reserves to $46.8 billion.

Fernandez, 58, needs to keep accumulating reserves to be able to tap about $5.7 billion for debt payments this year, as forecast in the government’s 2012 budget. The government used $6.6 billion of reserves in 2010 and $7.5 billion in 2011 to make debt payments.

The peso fell 7.6 percent last year, compared with a 11.1 percent drop by Brazil’s real and a 11 percent drop by the Mexican peso. The peso fell 0.1 percent today to 4.3538.

To contact the reporter on this story: Eliana Raszewski in Buenos Aires at eraszewski@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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