Argentina Said to Tighten Currency Rules as Reserves Drop

Argentina is tightening its grip on the country’s currency market as international reserves decline following its second debt default in 13 years.

Argentine banks must now seek government authorization for dollar purchases of $150,000 or more, down from a previous threshold of $300,000, according to three bank officials with direct knowledge of the matter. Central bank officials communicated the measure through telephone calls and instant messages to currency traders yesterday, two of the people said.

South America’s second-biggest economy is boosting controls on dollar purchases to retain foreign-currency reserves it relies on to pay debt and imports, according to Bank of America Corp. and Jefferies Group LLC. The central bank’s funds fell $567 million in the past month to $28.4 billion, the lowest since May. The peso in the black market is near a record low 14.25 per dollar as investors dump pesos on speculation hard currency will be increasingly scarce after the country’s July 30 default.

“The government is reacting to pressures in the foreign-exchange market with more restrictions,” said Ezequiel Aguirre, a strategist at Bank of America in New York. “Any effect of this measure on the currency will likely be temporary, since it doesn’t reduce demand for dollars.”

The central bank’s press office didn’t respond to a telephone message seeking comment.

The regulation probably means the central bank will start approving fewer dollar purchases or delaying the transactions, two of the people said. The change will primarily affect businesses that need to import goods, one of the people said.

More Rules

Argentina will probably react to pressure on the peso with further regulations, according to Siobhan Morden, the head of Latin American fixed-income strategy at Jefferies Group.

“We assume that the initial reaction focuses on restrictions, controls” and a steep devaluation to minimize market stress, Morden wrote in a report yesterday. “Argentina seems to have entered a countdown towards a balance-of-payments crisis.”

Last week the central bank ordered lenders to reduce their dollar holdings to 20 percent of liquid assets. Officials cut the requirement to 30 percent in February.

The peso has tumbled 22 percent this year, the most in emerging markets, to 8.4009 per dollar. It will weaken to 9.5 per dollar by year-end, according to the median estimate of 20 strategists surveyed by Bloomberg.

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