ARGENTINA/FILE: Argentina to relax foreign exchange controls in a move aimed to stimulate exports and halt the drain on reserves

Record ID: 447702

  • Title: ARGENTINA/FILE: Argentina to relax foreign exchange controls in a move aimed to stimulate exports and halt the drain on reserves
  • Date: 24th January 2014
  • Summary: BUENOS AIRES, ARGENTINA (FILE) (REUTERS) VARIOUS OF DOLLARS BEING COUNTED
  • Embargoed: 8th February 2014 12:00
  • Keywords:
  • Location: Argentina
  • Country: Argentina
  • Topics: Economy,Politics
  • Reuters ID: LVAEGO6CFVX7WUBWFSW19K0PHRAE
  • Story Text: Argentina's government on Friday (January 24) announced it decided to loosen strict foreign exchange controls, a day after the country's peso currency suffered its steepest daily decline in 12 years.
    Cabinet Chief Jorge Capitanich said the country would reduce the tax rate on dollar purchases to 20 percent from the current 35 percent and allow the purchase of dollars for savings accounts, measures that would go into effect on Monday.
    "We decided to authorize the purchase of dollars for holding individuals according to income flow and, in parallel, we decided to reduce the tax rate from 35 percent to 20 percent for the buyer," Capitanich said.
    Argentina's key grains sector has held back exports as farmers hoard their crops rather then expose themselves to the swooning local currency. This contributed to the scarcity of dollars that has debilitated the peso.
    The country is the world's top exporter of soymeal and soyoil as well as its third biggest soybean and corn supplier.
    The currency controls were imposed more than two years ago to curb capital flight as confidence falls in Latin America's No. 3 economy. Heavy stimulus spending unencumbered by inflation targeting has made Argentina a no-go zone for all but the most risk-hungry investors.
    Central bank foreign reserves were at $29.3 billion at the end of business on Thursday, having tumbled more than 30 percent last year.
    The bleeding of reserves forced the bank this week to abandon its policy of supporting the peso currency by intervening in the foreign exchange market, resulting in the currency's steepest plunge since the 2002 financial crisis.
    The peso-dollar interbank exchange rate ARS=RASL hit the 8 mark on Thursday, down 11 percent on the day, its biggest one-day percentage fall in 12 years.
    Argentina's black market peso fell 7.25 percent on Thursday to close at 13.1 per dollar.
    Every time President Cristina Fernandez tightened capital controls to shore up the country's wobbly balance of payments, it increased the scramble for dollars. This contributed to inflation and the fall in the value of the black market peso.
    The controls meant that the black market was the only way for average Argentines to get their hands on dollars amid high inflation.
    The new year began with analysts expecting a 30 percent rise in consumer prices in 2014. That would be the highest rate since 2002, when millions of middle class Argentines were pushed into poverty by a crisis punctuated by a sovereign bond default and 41 percent inflation.
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