UPDATE 2-Argentine peso plummets nearly 30 percent after controls lifted

23 Dec 2015 | Author: | No comments yet »

Argentina axes forex restrictions, devaluation looms.

Argentina’s peso tumbled as much as 30 percent as newly inaugurated President Mauricio Macri fulfilled his campaign promise of letting the currency float freely.†Introductory offers to be billed 4 weekly as per the following – The Australian Digital Subscription $4 per week to be billed as $16 4-weekly; The Australian Digital Subscription + The Weekend Australian (delivered Saturday) $4 per week to be billed as $16 4-weekly; The Australian Digital Subscription + 6 day paper delivery $8 per week to be billed as $32 4-weekly.BUENOS AIRES — Argentina’s new government scrapped foreign exchange restrictions on Wednesday, allowing citizens and companies to buy dollars freely for the first time in four years and setting up a potentially painful devaluation. Macri’s push for a devaluation was a key part of the economic overhaul he says is needed to lure investment that can jump-start an economy suffering from lackluster growth, inflation estimated at 25 percent and a shortage of dollars.

The decline will hit multinationals that operate in Argentina and ordinary Argentines who will see the value of their savings slashed in dollar terms. Finance Minister Alfonso Prat-Gay said the country “is normalising its economy” after years of forex controls under left-wing president Cristina Kirchner.

Economists had expected Argentina’s currency to weaken following Wednesday’s news the government was ending a four-year policy of strict limits on the sale of U.S. dollars, a policy that restricted imports, hurt economic growth and spawned a thriving currency black market. The key in coming days will be whether the Argentine central bank can prevent the currency from sliding further and entering into a disorderly depreciation. In addition, Argentina expects between $15 billion and $25 billion in inflows over the next month to bolster reserves. “It’s a positive start that should help instill a confidence shock and anchor investor expectations, at least on the short term,” said Patrick Esteruelas, a senior sovereign analyst at EMSO Asset Management, which oversees $2.6 billion. “In the medium term, people will be watching to see what’s the inflationary and sociopolitical impact, and whether it will affect this administration’s ability to continue to govern.” The peso weakened 29 percent to 13.89 per dollar as of 12 p.m. in Buenos Aires on the MAE electronic trading platform. Full offer terms and conditions apply – see www.theaustralian.com.au for full details. * Value calculated as at 24/11/15.Offer includes a free Samsung Galaxy Tab A 8” Tablet Model SM-T350NZAAXSA (WiFi Only).Please be aware introductory offers must be purchased before 18 December 2015 for delivery before Christmas Day. On the black market, which Argentines used to skirt the controls that limited their ability to buy greenbacks, the currency had most recently traded at about 14.6 pesos per dollar.

Many ordinary Argentines, accustomed to their country’s long history of financial booms and busts, said they anticipated the decline, which is expected to raise the country’s 25% inflation rate by making imports more expensive in local currency terms. “Even at 14 pesos (the) exchange rate is still cheap—that’s what it costs to buy a bar of chocolate,” said José Luis Mata, an immigrant from Venezuela who works at a record store. “Like it or not prices are going to go up here. Economists say it will probably settle close to the black-market rate — a steep devaluation. “Devaluation implies a significant fall in real wages because of the increase in the cost of living,” said Hernan Letcher of the Centre for Argentine Economic Policy.

But I’ve seen how currency controls ruined my home country and getting rid of them will help Argentina’s economy. “ “We raised our prices by 40% before the exchange-rate changes so we wouldn’t lose money,” said Marcela Ledesma, 48, who runs a retail store selling imported orthopedic equipment such as wheelchairs and walkers. Argentines who wanted to exchange pesos for dollars under the old system had to document where they got the money, and could only buy up to $2,000 a month.

Prices rose 1.2% in the first week of December alone, the fastest clip since Argentina devalued the peso by 20% in January 2014, according to Elypsis, an economic research firm. We will supply your contact details to JB Hi-Fi, who will deliver this tablet only to your registered subscription address and will email you with dispatch details. At the same time, the central bank will convert the equivalent of $3.1 billion of yuan obtained in a currency swap with China into U.S. dollars to boost liquidity in reserves. Macri has moved quickly to undo the economic legacy of nearly 14 years of populist policies by his predecessors, Cristina Kirchner and her late husband Nestor, who together dramatically expanded the government’s role in the economy, including nationalizing key companies, expanding subsidies and launching price controls.

Mr Macri, whose election ended 12 years of left-wing government, had vowed on the campaign trail to put an end to the official exchange rate from day one. Macri took office Dec. 10 in a country with foreign reserves at a nine-year low and a limited ability to borrow overseas because of a legal dispute with creditors who declined offers to restructure bonds left over from the country’s 2001 default. Argentina is in a painful economic slowdown, with inflation forecast to come in at more than 25% this year and more than 35% next year in case of a devaluation. Mr Macri’s administration is looking to restore investor confidence and restock foreign currency reserves that have fallen to precariously low levels. On Monday, the new president kicked off his reforms — dubbed “Macrieconomics” in Argentina — by eliminating or cutting a string of taxes on agricultural and industrial exports.

Advocates of a free-floating exchange rate have argued that Macri’s best bet to bring dollars into the country would be to devalue the peso, which would encourage farmers to sell hoarded crops that they’ve withheld from markets as they await better prices and also fuel inflows from foreign investors and businesses. “This is a significant and bold step toward the correction of the main price distortion currently affecting the economy, and more importantly toward the implementation of a sound, sustainable and credible policy framework,” Mauro Roca, a New York-based economist at Goldman Sachs Group Inc., wrote in a report. The decision to let the peso float is aimed at sparking growth by getting Argentina’s giant agribusiness sector to start exporting again through a more competitive exchange rate. Mr Prat-Gay and central bank chief Federico Sturzenegger had held a flurry of negotiations in recent days with banks and exporters to ensure a large enough reserve cushion to lift the exchange rate restrictions. The country’s farmers are ready to ship an estimated $8 billion in stored crops, according to five farmers, analysts and exporters interviewed by Bloomberg after the election.

Analysts say there is a large pent-up demand for greenbacks from companies, which for the past four years have had to resort to mechanisms such as bond swaps to access dollars. Offers are available to new customers with an Australian residential address who have not held a digital subscription with The Australian in the 6 months preceding subscribing for this offer. For many in Latin America, the price of their currency in dollars is as widely watched as gasoline prices in the U.S., a key gauge of economic well-being. One of the underlying problems for the country’s currency, in addition to inflation, is Argentina’s gap between what it spends and takes in—a shortfall equal to about 7% of annual economic output.

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