Argentine peso plunges as dollar controls lifted

Thousands protest outside Congress

BUENOS AIRES, Dec 18, (AFP): The Argentine peso lost 30 percent of its value against the dollar Thursday after the new pro-business government abruptly scrapped foreign exchange restrictions introduced by its leftist predecessors.

The sharp devaluation came a day after the government ended four years of currency controls that propped up salaries and domestic producers in Latin America’s thirdlargest economy.

At the close of trading on the first day without the currency limits, dollars were changing hands for 14 pesos, up from a closing rate of 9.84 pesos on Wednesday.

The dollar had briefly surged by more than 52 percent to 15 pesos at the start of trading.

President Mauricio Macri’s opponents said easing the limits on dollar transactions and the fixed exchange rate would hurt ordinary Argentines’ spending power.

But Macri says the readjustment will boost exports and the wider economy.

Reactions

Reactions were mixed on the street in the politically divided country.

“It is a deep devaluation but it is necessary,” said Rosa Menendez, 50, an administrator in Buenos Aires.

But shoe shop owner Guillermo Suarez warned: “These measures will harm consumption and national industry.”

Macri narrowly won a run-off presidential election last month, promising deep reforms for Argentina, which is facing a possible recession next year.

Finance Minister Alfonso PratGay told journalists on Wednesday the country was “normalizing” after years of forex controls which he said “drowned the economy” under leftwing president Cristina Kirchner.

Elected in 2007 following the death of her late husband Nestor, she imposed the restrictions in 2011 in a bid to stop capital flight and tax evasion.

But four years on, they were hurting exporters, denting productivity and distorting the economy.

Prat-Gay said the complex system of foreign exchange limitations for companies and individuals was scrapped, with a single exchange rate determined by the market.

“Whoever wants to export will be able to export without a permit, whoever wants to import will import,” he told a press conference.

“Whoever wants to buy dollars will be able to buy them, whoever wants to sell them will be able to sell them, and nobody will come after you.”

Prat-Gay said the central bank would intervene by buying or selling dollars if necessary to avoid sharp changes.

Companies and individuals can buy up to $2 million a month with no restrictions, he said. The previous limit was $2,000 a month.

Prat-Gay, a former Wall Street banker, is one of a team of largely US-trained officials appointed by Macri, who has vowed to mend Argentina’s relations with Washington and other powers.

Economist Nicolas Dujovne told AFP the scrapping of the controls would be considered a success if the dollar reached the recent market level of between 14 and 15 pesos without driving consumer prices too high.

Argentina is in a painful eco- nomic slowdown, with inflation forecast to come in at more than 25 percent this year and more than 35 percent next year in case of a devaluation.

The International Monetary Fund forecasts the economy will contract next year.

Analysts estimate that the price of a sample basket of basic goods has risen by up to 60 percent in recent weeks.

“There was not much room to keep putting off this decision,” said consultancy Ecolatina in a report.

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.

In central Buenos Aires on Thursday, illegal street moneychangers who have thrived over recent years of currency controls continued selling dollars for about 14.2 pesos.

Tens of thousands of protesters rallied outside Congress late Thursday against President Mauricio Macri, a mere week after the conservative politician took office as Argentina’s new president.

Macri has taken a series of measures reversing the leftist policies of former president Cristina Kirchner (2007-2015), which include ending currency controls -- resulting in the peso quickly loosing 30 percent of its value.

Kirchner’s Peronist bloc is especially angered by Macri’s use of a decree to fill two Supreme Court vacancies, circumventing approval in the Senate where the opposition has a majority.

Marching in the crowd was Daniel Scioli, the Kirchnersupported candidate Macri defeated in the November election with 51 to 49 percent.

“I came because it seemed to me very important to support the position of the (Peronist) bloc that institutional procedures for naming judges is respected,” Scioli said.

The rally was originally called to support a controversial news media anti-monopoly law approved under Kirchner in 2009, which Macri opposes.

Changed

“We will not allow the constitution to be violated as happened with the court justices, nor that laws are changed by decree as is the case of the media law,” warned Hector Recalde, a senior Peronist lawmaker.

Macri’s opponents said easing the limits on dollar transactions and the fixed exchange rate would hurt ordinary Argentines’ spending power.

But the new president says the currency readjustment will boost exports and the wider economy.

Argentina is in a painful economic slowdown, with inflation forecast to come in at more than 25 percent this year and more than 35 percent next year in case of a devaluation.

The International Monetary Fund forecasts that the economy will contract next year.

Analysts estimate that the price of a sample basket of basic household items has risen by up to 60 percent in recent weeks.

To boost the economy, Macri has vowed to overhaul Kirchner’s legacy of hands-on economic management, including protectionist import controls, heavy taxes on agricultural exports and an official exchange rate.