BUENOS AIRES (Dow Jones)–Businesses and individuals pulled money out of Argentina at a faster pace during the second quarter ahead of presidential and congressional elections in October, according to a measure of capital flight published by the central bank.
The formation of assets abroad by the nonfinancial private sector rose to $6.13 billion in the quarter, from $3.68 billion in the previous quarter and $2.24 billion in the fourth quarter of 2010, the Central Bank of Argentina said in its quarterly foreign exchange report Thursday.
The central bank attributed the increase to the «habitual behaviour of the private sector in pre-election periods» with most of the foreign currency demand coming from small savers.
Argentines frequently turn to the U.S. dollar during an election year and 2011 is proving to be no exception.
President Cristina Kirchner, whose populist economic policies have long spooked foreign investors, is still widely favored to win re-election this year even after her ruling coalition suffered big losses in local elections in Buenos Aires City and Santa Fe Province last month.
The central bank regularly intervenes in the foreign exchange markets to engineer a gradual depreciation of the peso versus the dollar to control inflation and to help exporters.
The central bank said it made net foreign exchange purchases of $2.40 billion during the quarter, down from $3.15 billion purchased in the first quarter. The central bank’s international reserves totaled $50.31 billion on Thursday, compared with $51.7 billion at the end of June.
The peso has weakened about 4.2% against the dollar so far this year, closing at ARS4.1535 versus the dollar Thursday. The government has pledged an average exchange rate of around ARS4.10 per dollar in 2011.
J.P. Morgan said in a note that it expects the peso to end the year at ARS4.25 per dollar as the central bank and pension fund agency Anses likely continue intervening in the exchange market.
Argentina imposes restrictions on capital inflows and outflows, with Argentine residents limited to $2 million a month in foreign currency purchases.
Dividends and profits sent abroad by companies totaled $1.66 billion in the quarter, compared with $361 million in the first quarter and $914 million in the fourth quarter of 2010, the central bank said.
Foreign direct investment rose to $829 million in the quarter, totaling $2.56 billion for the 12-month period ended June 30. The central bank said that mining, petrochemicals, and construction were the single biggest recipients of that investment.
-By Ken Parks, Dow Jones Newswires; 54-11-4103-6740, ken.parks@dowjones.com
Source: online.wsj.com