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Argentine Black Market Peso Tumbles to 5-Month Low Before Vote

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Oct. 22 (Bloomberg) -- The Argentine peso tumbled in the black market to the weakest since May as demand for dollars surges on speculation the government will clamp down on access to foreign currency after Oct. 27 congressional elections.

The peso fell 1.5 percent to 10.05 per dollar in the illegal currency market at 4:20 p.m. in Buenos Aires, according to prices compiled by Ambito.com. That’s the weakest since it slid to a record 10.45 per dollar on May 5. The peso has weakened 32.5 percent this year in the unofficial market and is now more than 70 percent weaker than the official rate of 5.8533 per dollar.

President Cristina Fernandez de Kirchner, who is recovering from an Oct. 8 surgery to drain a hematoma in her skull, has restricted dollar sales in the domestic market since winning re-election in 2011 and slapped a 20 percent tax on the use of credit cards abroad. While she has managed to reduce capital flight, the country’s international reserves are being drained at a rate of $1 billion a month and have fallen to a six-year low of $34.1 billion as the country’s energy deficit widens.

“The government will tighten controls even more by limiting the use of credit cards abroad because we have a serious problem and the government needs the dollars to pay debt,” former central bank president Aldo Pignanelli said in a telephone interview from Buenos Aires. “The question is how much longer can Argentina withstand the draining of reserves.”

The amount Argentines spent abroad with credit cards surpassed that spent by tourists in Argentina by $711 million in the first eight months of the year, according to the National Statistic Institute.

‘Cocaine’ Price

Argentine government officials are monitoring the situation at exchange houses in Buenos Aires and there’s “total calm” in the market, said Alejandro Vanoli, head of the securities regulator, according to state-run news agency Telam.

“There’s a real and virtual country; in the virtual, the media wants to represent their right-wing interests, they want to generate panic in the population ahead of the elections,” Telam reported, citing Vanoli. “They want to install an exchange rate that is in the first place illegal, as if they were publishing the price of cocaine, and is of little significance.”

The central bank sold $40 million in the official foreign exchange market today, less than half the $100 million sold yesterday.

Congressional Election

About 31 million Argentines are obliged to vote in the Oct. 27 mid-term election to renew half of the 257-member lower house and a third of the 72-member Senate. Fernandez’s candidates are forecast to replicate results of an Aug. 11 primary election, in which support for her Victory Front coalition dwindled to a 10-year low, according to a survey by Management & Fit. The primary results squashed speculation Fernandez would seek a constitutional overhaul to seek a third term in 2015.

Argentines look to buy dollars with their pesos to protect against inflation. Consumer prices rose 25.4 percent in September from a year earlier, the highest in the region after Venezuela, according to private estimates. Official inflation data, which is questioned by the International Monetary Fund, was 10.5 percent last month.

The peso has fallen 16 percent this year, more than double the rate of depreciation in the same period a year earlier.

While the 70 percent premium Argentines pay to buy dollars in the informal market is a fraction of the 750 percent gap between the official and black market rates in Venezuela, the difference may widen, according to Jose Alfredo Nogueira, director of Buenos Aires-based ABC Mercado de Cambios.

Cuban Policy

Cuba’s communist government, which has maintained two exchange rates since the mid-1990s with a difference of 25-to-1, will begin to eliminate the system to boost efficiency and trade, according to a statement published today in the state-run Granma newspaper.

“There’s higher demand for dollars because savers seek to protect their money,” said Jose Alfredo Nogueira, director of Buenos Aires-based ABC Mercado de Cambios. “The government needs to address the economic problems such as high inflation, subsidies and cut taxes. The exchange rate reflects the current situation of the economy.”

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

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net

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