BUENOS AIRES–A recent flurry of government measures to restrain foreign currency purchases haven’t succeeded in stemming a slow but steady drain on the central bank’s dollar reserves, making Argentine savers even more uneasy in the process.
As it tries to prop up the peso, the Central Bank has been losing close to $100 million a day in reserves since the government of leftist President Cristina Kirchner imposed new restrictions on foreign exchange transactions on Oct. 31. The government said the new measures, which require the federal tax agency to approve foreign currency purchases, are aimed at attacking money laundering and tax evasion.
But economists say the restrictions are in reality designed to counter a surge in capital flight, which has lowered central bank reserves to $46.81 billion from $52 billion in early August.
In the past couple of weeks, the loss of reserves hasn’t been coming so much from the foreign exchange market, as it has from Argentines who are pulling money out of dollar-denominated accounts in local banks, according to Bret Rosen, an economist at Standard Chartered Bank. Dollar deposits in the financial system totaled $15.96 billion as of Oct. 28, according to Central Bank data. They make up about 15% of total deposits in the banking system.
Economists said that even though reserves have reached their lowest level since November of 2009, Argentina’s central bank still had plenty of ammunition. «[Reserve levels] are adequate if they fix their economic policies,» said Alberto Ramos, an economist at Goldman Sachs. «They are not adequate if they don’t change their policies, particularly on the foreign exchange front.»
A central bank spokesman said the movement in reserves is related to the monetary authority’s participation in the foreign exchange market and fluctuations in reserve currencies, among other factors.
But analysts say that many of the steps the government has taken to staunch the dollar outflow are self defeating, and only add to Argentines’ sense of anxiety. Experience with countless previous economic crises–including a freeze on bank deposits a decade ago–has made Argentines unusually susceptible to financial jitters, analysts add.
The government sowed further turmoil Wednesday, temporarily bringing the import market to a halt, when customs officials issued a new rule requiring importers to show additional banking paperwork. According to Antonio Cairo, the vice president of the association of customs dispatchers, government officials explained that the measure was aimed at clamping down on importers who were over-invoicing merchandise in order to surreptitiously ship dollars out of the country. As containers were backed up at ports Wednesday, a group of importers staged a spontaneous protest at the customs office, and the government quickly withdrew the rule. Import transactions were being conducted normally Thursday, Mr. Cairo said.
The peso has appreciated relative to the dollar in real terms over the past couple of years as the government has used the currency to anchor growth and keep inflation from spiraling beyond its current level of from 20% to 25% annually. The dollar-outflow started increasing in intensity a couple months ago as Argentines began anticipating a faster devaluation following the landslide reelection of President Cristina Kirchner in October.
Another sign of investor uncertainty is the gap that has opened between the official exchange rate of about 4.26 pesos to the dollar, and the rate on the parallel market of around 4.9 pesos to the dollar. When such a breach opens in Argentina, the formal rate eventually shifts towards the level of the informal one, sooner or later, says Ramiro Castineira, an economist at the Buenos Aires Econometrica consultancy.
Central bank coffers should soon get a boost due to another recent government measure requiring oil, gas, and mining companies to deposit all proceeds from their export sales in Argentina. Also, insurers have also been banned from investing abroad and have until the end of the year to repatriate their current offshore investments. In addition, reserves tend to swell in the first half of the year as farmers repatriate the proceeds of Argentina’s massive grain exports.
Curiously, the central bank has delayed publication of its quarterly foreign exchange market report, which contains a key measure of capital outflows, to Dec. 1 from Nov. 10.
Gustavo Canonero, the head of emerging market economic research at Deutsche Bank, said the administration would probably have more success in taming capital outflows if it were to speed up the depreciation of the peso and allow benchmark interest rates to rise. «The central bank has to realize that people are fleeing the peso for an economic reason,» he said. «One way to correct that is to make it more attractive to hold pesos and address the reasons behind the demand for dollars, which is expectation of further real appreciation as inflation is running much faster that peso depreciation.»
Source: online.wsj.com