Traders Dread Angry Calls in Argentina’s Perplexing Peso Market

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Currency trading in Argentina is like nowhere else in the world, a trying process that involves Excel spreadsheets, byzantine tax codes and obtaining clearance from the central bank. And that’s exactly how authorities want it.

Argentina’s government is hampering efforts to buy foreign exchange by doling out progressively smaller amounts of dollars in the three years since implementing currency controls. At the same time, officials are cracking down on black-market street trading and pressuring brokers to stop allowing investors to swap local assets for overseas securities to obtain dollars.

While the clampdown has helped boost Argentina’s reserves to an 18-month high, it’s also wreaking havoc on a shrinking economy by hampering imports of car parts, phone chips and other goods needed to keep factories humming. The government’s insistence on controlling foreign-exchange demand to the last U.S. cent also underscores how strapped for hard currency the nation remains, 14 years after a $95 billion default left it locked out of international capital markets.

“They think they can dictate the dollar, prices, supply and demand,” Jose Alfredo Nogueira, the director of Buenos Aires-based currency dealer ABC Mercado de Cambios, said by phone. “It’s like covering the sun with a finger.”

Argentine currency traders are more likely to be clenching their fists in frustration.

Priority Dollars

Every afternoon, they need to send the monetary authority an Excel spreadsheet showing the names of companies seeking to buy dollars, the amounts, and the reason for the transaction, according to four participants who asked not to be identified because they aren’t authorized to speak publicly on the matter and don’t want to jeopardize their relationship with regulators.

The central bank sends a list back the next morning through a private online messaging service, with the approved amounts. While official regulations say companies only need to notify the tax agency of plans to buy foreign exchange, in practice the central bank dictates how much gets transferred and when. Anyone who steps outside that line gets a scolding call from the central bank’s trading desk.

“This is all part of the financial repression of the Argentine government,” said Ezequiel Aguirre, a strategist at Bank of America Corp. in New York. “Most imports are capital goods needed to make the final product, so restrictions reduce industrial activity, instead of their aim of boosting local industry.”

Argentina peso slipped 0.1 percent Tuesday to 8.9165 per dollar as of 3:36 p.m. in New York, extending its decline this year to 5.1 percent.

Trapped Dividends

Central bank President Alejandro Vanoli told reporters on April 23 that payments to importers increased 30 percent in March from a year earlier. The central bank press office declined to comment on the ways in which trading is regulated.

Imports dropped this year to the lowest level since 2009, and the central bank owes companies a record $4.6 billion for approved transactions that haven’t been paid out, according to the Argentine importers chamber. Companies are also seeking as much as $13 billion to pay dividends outside the country, according to Goldman Sachs Group Inc. Combined, that’s about 53 percent of Argentina’s gross reserves of $33.2 billion.

The economy is forecast to shrink 1 percent this year, the first contraction since 2002, contributing to the decline in imports. Industrial production fell for a 20th straight month in March, the longest streak of declines in data going back to 2009.

Black Market

While buying dollars is a convoluted process for businesses, it isn’t much easier for individuals. Argentines have to be registered taxpayers who earn more than 7,200 pesos ($800) per month to buy dollars for savings, and there’s a $2,000 monthly limit. Only about half of Argentines work in registered jobs, according to the International Labor Office, and among those, only one in five earn enough to buy dollars.

So when Economy Minister Axel Kicillof said in an April 21 interview with state television that there are no currency controls, Argentines expressing indignation took to Twitter, making his last name a trending topic.

Argentines with no access to the official market can turn to the black market to buy dollars for 12.7 pesos each, 43 percent higher than the official rate. The gap was as high as 90 percent in September.

While the central bank is unable to control that market in the same way it oversees official trading, it has doubled raids on illegal exchange houses and traders this year. The central bank said last month it would boost surveillance further.

Balance Sheet

At the same time, investors who used a complicated system of swapping local assets for overseas securities to obtain dollars, called the blue-chip swap, are having difficulty as securities regulators pressure brokers to reduce those trades.

The peso in the blue-chip swap market has strengthened 27 percent to 11.9 per dollar, from a high of 15.06 in September.

One trader who asked not to be identified described how strange life can be under the current regime. After playing by the rules on dollar purchases -- only providing clients with the approved amounts -- the trader sold $3 million of pesos to a grain exporter who needed to make local payments.

Regulators found out when his bank’s balance sheet of dollar holdings swelled. Even though the holdings were within the legal limits for banks, he still got an angry call from the monetary authority excoriating him for his dollar purchase.

He apologized profusely and promised never to do it again.

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