Emergency short-term capital controls have been announced to stabilise the falling peso, posing risks to Australian exporters and businesses in Argentina.
Exchange controls were reinstated in Argentina in early September, amid a worsening debt crisis and inflation of over 50%. Argentines have been rushing to buy US dollars and the central bank’s foreign reserves have fallen sharply. The depreciation of the Argentinian peso has also increased the cost of servicing foreign debt, which is largely denominated in US dollars. The government has responded by seeking to restructure US$105 billion of its debt and reintroducing currency controls on both businesses and individuals. As of 2 September, individuals are only allowed to buy foreign currency of up to US$10,000 a month, while strict deadlines apply for companies to bring back to Argentina foreign currency earnings from exports, with commodity exporters being the most affected.
While the restrictions do not currently apply to the purchase of foreign currency to pay for imports or foreign debts, there is certainly a risk of interruptions in the payment chain if capital controls need to be tightened (something that cannot be ruled out at this stage). However, the restrictions may also prevent the repatriation to Australia of Australian business profits and affect prospective investments in key areas such as mining and agriculture.
The exchange controls appear to have helped stabilise the peso’s value for the moment, following a 20% depreciation over the last month. While the impact on the average citizen is limited, the decision has been unpopular among the business community. Exchange controls have raised the prospect of a return to interventionist policy and boosted political uncertainty. The gap between the official and black market exchange rate, virtually eliminated during most of Macri’s administration, has re-emerged and it currently sits at around 10%.