Argentine Capital Outflows Slowed to $3.4 Billion Last Year

Argentine capital outflows fell 84 percent last year to the lowest since 2006 after President Cristina Fernandez de Kirchner tightened currency controls.

The central bank said outflows totaled $3.4 billion in 2012 after $21.5 billion left the country in 2011. The economy received a net inflow of $163 million in the fourth quarter, the second consecutive quarterly inflow, the bank said yesterday in an e-mailed report.

“Capital outflows slowed because it’s now forbidden by the measures imposed,” Marina Dal Poggetto, an economist at Buenos Aires-based economic research firm Estudio Bein & Asociados, said in a phone interview. “The slowdown is not a result of a higher confidence in the local currency.”

Fernandez, 60, has restricted access to foreign currency and banned purchases of dollars for savings since being re-elected in October 2011 in a bid to stem capital flight fueled by a weakening peso. In that period, dollar deposits in Argentine commercial banks, which are counted as international reserves, fell 50 percent to $7.6 billion. That has weighed on central bank funds that the government taps to pay debt, contributing to a 7 percent drop last year to $42 billion.

Falling Reserves

The government plans to tap $8 billion from reserves this year for debt payments, according to the budget law. Argentina’s Treasury has used more than $30 billion of reserves since 2010 to pay foreign debt, central bank President Mercedes Marco del Pont told state-run news agency Telam this month. Argentina has been locked out of international capital markets since its $95 billion default in 2001.

Foreign direct investment was $5.4 billion in the first half of 2012, compared with $43.2 billion in Brazil, $12.3 billion in Chile and $9.6 billion in Mexico, according to the United Nations.

South America’s second-largest economy posted a trade surplus of $12.7 billion last year, a 27 percent increase from 2011.

While the government’s import restrictions and capital controls have managed to slow outflows and maintain a positive trade balance, inflation estimated at 26 percent has increased demand for dollars among Argentines looking to protect savings and adding to a growing unregulated currency market, Dal Poggetto said.

Weakening Peso

The peso weakened 13.4 percent in the past 12 months to 5.03 pesos per dollar at 11:30 a.m. in Buenos Aires, the biggest decline among Latin American currencies after Venezuela, which devalued the bolivar 32 percent on Feb. 8.

In an unregulated market, where investors buy peso-denominated securities locally and sell them abroad for dollars, the peso has weakened 41 percent to 7.9972 per dollar in that period.

Argentines bought an average $35 million per working day last year in the parallel market, or a total of $8.75 billion, Cronista said, without explaining how it obtained the information.

“The exchange controls show positive results but the situation in the exchange rate remains tense,” said Santiago Massia, economist at Buenos Aires-based Ecolatina research company. “You can’t control the amount of dollar sales and the price at the same time, the consequence of that is a weaker unofficial peso.”

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