Government to consider easing capital controls after debt deal

The Government may consider easing Argentina’s ultra-tight capital controls once it finishes negotiations with bondholders to restructure its debt and coronavirus uncertainty clears, says Economy Minister Martín Guzmán.

Argentina acknowledges the need to relax the controls over its currency markets as a way to promote economic activity, Guzmán said in an interview with Bloomberg, declining to give any time frame when such a change may take place.

A successful debt renegotiation and more clarity after the global coronavirus pandemic are necessary before Argentina can consider such a move, he said, suggesting a revision of the controls is unlikely to happen anytime soon.

“It’s our intention to ease the capital controls, to move to capital account regulations that are more appropriate for economic development,” the minister said in an interview Wednesday. The debt restructuring is “a necessary condition to be able to alleviate the capital controls.”

Argentina’s previous administration brought back capital controls in September after a rout led the peso to drop over 50 percent. That brought the parallel blue-chip swap rate back into popular use for both locals and investors looking to buy greenbacks to protect their savings. At 120 pesos per US dollar, the rate is almost double the official exchange rate of 67 pesos per dollar.

While Guzmán emphasised increasing Argentina’s foreign reserves has to precede easing controls, he declined to name a number that would qualify for lifting any measure. The country forecasts foreign reserves rising to US$50 billion by the end of the year from US$43 billion, according to an April 9 document released earlier this week. It ultimately sees reserves reaching US$77 billion by 2030.

Parallel rates

In the past, the wide gap between exchange rates has hindered Argentina’s exports, hurt growth and boosted inflation that’s already running above 48 percent annually. As the gap between the spot peso and the parallel peso gained over past weeks, the Central Bank and the securities regulator tightened controls on businesses and enhanced oversight of brokers, a move many interpreted as a way to deter dollar purchases.

Guzmán said that the government closely follows the gap between both rates, which widened as much as 53 percent on May 1, and that he saw it as a reflection of the country’s macroeconomic “fragilities.” The 37-year-old added that the current controls aren’t part of the framework for long-term sustainable economic growth in Argentina. Still, the global pandemic makes it tougher to determine the time when they’ll be unwound, he added.

“Argentina has to be resilient enough to ease capital controls,” said the minister. “In the context of Covid-19, it’s very hard to make an assessment of what will be the optimal timing, there are many factors.”

The government sees the economy contracting 6.5 percent this year, according to the April 9 presentation. He added that in an optimistic long-term outlook, it sees growth of 1.7 percent per year.

Looking beyond the pandemic, Guzmán said the country will need policies to boost competitiveness and productivity, and that it’s assessing the effects of the virus on key sectors, like energy. He declined to give forecasts for unemployment as a result of the virus.

“In the end, the country needs to have a three-pronged approach that allows job creation, increase in productivity and macroeconomic consistency to produce foreign revenues that avoid the country to fall into recurrent balance of payment crises,” he said.