Argentina to relax forex controls as peso falls, but no counter inflation measures

Now Reading:

Argentina to relax forex controls as peso falls, but no counter inflation measures

Text size Aa Aa

Argentina’s government has said it is to loosen strict foreign exchange controls.

The announcement came one day after the country’s peso currency suffered its steepest daily decline against the US dollar in 12 years.

The move should help Argentina’s finances by stimulating exports and halting the drain on central bank reserves, as it has been spending vast amounts of dollars to prop up the peso.

Analyst Fausto Spotorno said the central bank couldn’t go on doing that:“Its reserves were disappearing, so I think they felt let’s stop and see where it goes. If they’d continued, they would have lost hundreds of millions in reserves a day, billions in a week, four billion dollars in a month and in five months they’d be tapped out.”

Currency controls were imposed to stop Argentinians sending their money out of the country.

But relaxing them does little to combat Argentina’s key problem – inflation, which is forecast by private economists at around 30 percent this year.

“If they do not complement this week’s decisions with further announcements that anchor inflation and devaluation expectations, we should expect more inflation and foreign exchange volatility,” said Ignacio Labaqui, who analyses Argentina for New York-based Medley Global Advisors.

“The announcement of a coherent strategy to tame inflation is still missing,” he added.

Argentina is the world’s top exporter of soymeal and soyoil as well as the third biggest soybean and corn supplier.

But farmers have been hoarding their crops as exporting them would mean exposing themselves to the weakening local currency. That has contributed to the scarcity of dollars that has debilitated the peso.