Friday, November 14, 2014

Argentina: Buenos Aires Cracks Down on US Dollars

According to The Latin American Tribune, an informal market for dollars began flourishing in late 2011, when President Cristina Fernández’s administration--concerned about a drop in international reserves--began making it more difficult to access the greenback through legal channels.

Raids by tax officials in downtown Buenos Aires and elsewhere in Argentina and a battery of measures by the new Central Bank leadership are being used in a crackdown on black-market dollar exchanges and sophisticated capital-flight mechanisms.

A currency devaluation in January 2014 then caused the price of the dollar on the black market to surge.

The price of the so-called “blue dollar” touched a high of 15.95 pesos per greenback in late September, although it had dropped to 12.60 pesos on Monday (November 10).

That pullback was due in part to a shakeup at the Central Bank, which has been led since October 2014 by Alejandro Vanoli, former head of Argentina’s CNV securities regulator.

Under Vanoli’s leadership, the monetary authority has fought a decline in Central Bank reserves by limiting advance payments for imports and establishing more controls on the repatriation of foreign direct investment.

It also has put a halt to so-called “blue-chip swaps,” a loophole whereby large companies such as banks and exporters bought dollar-denominated sovereign bonds in pesos and transferred them abroad to exchange for dollars.

These measures have contributed to a lower demand for dollars and pushed the price down.

COMMENT: The Central Bank also has launched a crackdown on “cuevas” (caves), illegal currency-exchange offices; and “arbolitos,” individuals who sell dollars illegally on the street; as well as banks and other financial institutions, stock brokers and currency houses.

The CNV and tax authorities also have participated in these raids in Buenos Aires and other cities.

The “arbolitos” disappeared from the streets and the “cuevas” pulled down their shutters, resulting in a supply shortage that caused the price of the blue dollar to climb back up to 13.68 pesos per greenback.

Despite that temporary rebound, experts expect the value of the black-market dollar will keep falling and predict the gap between the blue dollar and the official dollar--whose price is set at 8.5 pesos per greenback--will continue to narrow after widening to as much as 90%.

The Central Bank, meanwhile, said in a recent report that the positive expectations over a recent reserves-boosting and massive currency-swap accord with Beijing, among other factors, have helped shrink the black market for dollars:

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