Bloomberg News

Argentina Seeks Currency Market Oversight on Capital Flight

October 25, 2011

(Updates to add former central bank chief’s comments from seventh paragraph.)

Oct. 25 (Bloomberg) -- Argentine President Cristina Fernandez de Kirchner is toughening controls over foreign exchange houses in a bid to stem capital flight that is draining reserves at the nation’s central bank.

Tax agency officials visited Buenos Aires exchange houses today, telling people seeking to buy as little as $100 to fill out currency exchange forms and provide identification and proof of income. Jose Sbattella, head of Argentina’s anti-money laundering agency, said the government is trying to crack down on investors who use other people to buy dollars for them.

“There is no reason for people to hide themselves if they are buying dollars and want to get them out of Argentina in a legal manner,” Sbattella said in an interview today on Radio Del Plata. More “transparency” is needed in the foreign currency market, he added.

The heightened supervision comes as Fernandez, who won re- election on Oct. 23, seeks to slow capital flight estimated at $3 billion per month that is draining central bank savings. Banco Central de la Republica Argentina sold $2.7 billion of reserves in August and September to stem a depreciation in the peso, which has weakened 6.1 percent this year, compared with a drop of 5.6 percent by the Brazilian real.

Accelerating Capital Flight

Argentines pulled $9.8 billion out of South America’s second-biggest economy in the first half of this year, compared with $11.4 billion in all of 2010, according to central bank data.

Reserves have tumbled to $47.8 billion from a record $52.6 billion in January as the lender taps reserves to defend the peso and pay debt, while central banks in Mexico, Brazil and Chile boost savings. The Argentine central bank’s gold and foreign currency holdings will decline to $37 billion next year, the lowest since 2007, according to RBS Securities Inc.

“This isn’t going to calm things down,” said Roque Fernandez, a former central bank president and economy minister, in a telephone interview. “To the contrary, this is going to complicate it more.”

The peso was unchanged at 4.2360 per dollar at 2:55 p.m. New York time. In the unregulated parallel currency market, which investors and companies use to skirt capital controls, the currency was trading at 4.7931 per dollar. The 55-centavo gap is near the widest since November 2008.

‘Widen the Gap’

At Banco Piano SA, in downtown Buenos Aires, clients today were asked to show a credit card or proof of payments to a private health plan before they could buy dollars, bank President Alfredo Piano said.

“This is going to widen the gap between the official market and the parallel one,” said former central bank chief Fernandez, who isn’t related to the president. The government should implement a fiscal plan that would ease devaluation expectations by reducing public spending and generating a budget surplus, he said. Government spending rose 43 percent in August from a year earlier to 47.5 billion pesos while revenue climbed 34 percent.

“Once you resolve the fiscal problem, then you will solve inflation and the exchange impact that inflation has,” Roque Fernandez said. “The exchange rate should be modified while there are still reserves at the bank. I’m sure that those who understand this issue are already aware of these red lights.”

--Editors: Bill Faries, Richard Jarvie

To contact the reporter on this story: Eliana Raszewski in Buenos Aires at eraszewski@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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