Argentine Quarterly Capital Flight Slows on Fernandez’s Steps
Argentine capital flight slowed in the first quarter after President Cristina Fernandez de Kirchner tightened controls over the foreign exchange market and forced companies to bring money into the country.
Investors withdrew $1.6 billion from South America’s second-biggest economy in the January-through-March period compared with $3.3 billion in the final three months of 2011, the central bank said yesterday in an e-mail report. Argentines pulled $21.5 billion out of the country last year, almost double 2010’s $11.4 billion.
Since her re-election in October, Fernandez has ordered energy producers and miners to repatriate export revenue, told insurance companies to bring money invested abroad into the country and boosted restrictions on imports. The president also required all purchases of foreign currency to be authorized by the federal tax agency. The controls are driving up the dollar in an unregulated market, where the premium over the official rate has widened to 33 percent from 8.5 percent on Dec. 30.
“The solution to this situation is to generate confidence and all these administrative controls turn against it,” said Claudio Loser, a former head of Western Hemisphere Affairs at the International Monetary Fund. “The gap between the official exchange rate and the unregulated rate shows that people are still taking money out.”
The peso fell 0.1 percent yesterday to 4.4513 per dollar. In the so-called blue chip market, where investors buy securities locally in pesos and sell them for dollars abroad, the peso strengthened 1.7 percent to 5.8579 per dollar from May 16’s record 5.9281.
Annual inflation that economists estimate at about 23 percent has fueled speculation the government will have to allow the currency to weaken faster to help manufacturers compete with foreign producers.
In Brazil, Argentina’s biggest trade partner, the real slumped 20 percent over the past 12 months while the peso weakened 8 percent. The government, whose inflation data is questioned by the International Monetary Fund, says prices rose in April from a year earlier.
Fernandez’s measure have helped the central bank build reserves to $47.6 billion yesterday from as low as $44.7 billion in December.
“These measures may work in the short term but not in the long term because they attack the effect and not the cause,” said Maximiliano Castillo, a former manager at the central bank who now runs ACM Consultores in Buenos Aires. “Right or wrong, people consider that dollars are cheap and try to buy them. They save in that currency because they believe that the peso is losing value.”
Fernandez uses central bank foreign currency holdings to help service the nation’s foreign debt. This year, she plans to tap about $5.7 billion of reserves to pay creditors, according to the 2012 budget.
The government used $6.6 billion of reserves in 2010 and $7.5 billion in 2011 to make debt payments.
Fernandez’s controls also aim at stemming a narrowing trade surplus, which fell to $10.3 billion last year from $11.6 billion in 2010 as imports rose 31 percent and exports increased 24 percent.
As a result of the restrictions, which include gaining authorization from the tax authorities before purchasing goods to bring into the country, imports were unchanged in the first quarter of this year while exports rose 8 percent, according to the national statistics agency.
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