(Bloomberg) — Argentina’s latest crackdown on dollar purchases exposed a split between the nation’s top policy makers as they struggle to find a way back from the deepest crash on record.
Argentina’s dollar bonds extended their drop on Thursday, two days after Central Bank chief Miguel Pesce tightened already-strict currency controls.
Pesce wanted to ban savers from buying any dollars at all, while Economy Minister Martin Guzman opposed the idea, according to four people with direct knowledge of the matter. Ultimately, they reached a compromise after meeting with President Alberto Fernandez early last week.
With no clear plan to pull the economy out of a deep three-year recession, the government is trying to cling on and protect Argentina’s dwindling dollar reserves at least until the soy harvest starts in March, when rising agricultural exports boost dollar receipts, according to two people with direct knowledge.
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Guzman had previously voiced his opposition to tighter controls, saying he favored “‘normalization” of Argentina’s currency markets.
The government’s economic team is also split over how long the curbs should stay in place. Some view the new controls as indefinite, while others want them to be temporary solutions, the people said. Only one of the measures, aimed at company debt in foreign currency, has a set expiry date, for the end of March.
A central bank spokesman denied that there’s any division with the economy ministry, and said the policy was coordinated between the leaders of the economic team. The economy ministry didn’t reply to a request for comment.
The latest controls include a new tax for savers buying greenbacks. The government is also forcing companies with more than $1 million in monthly capital debt payments through March to restructure or defer part of those obligations.
The measures ended a period of relative calm in the turbulent economy, two weeks after a debt restructuring that was intended to restore some investor confidence in Argentina following the nation’s ninth default.
“There’s a high degree of unease in terms of investors looking at the country, and companies operating in the country,” said Jimena Blanco, director of Latin America research at consulting firm Verisk Maplecroft in Buenos Aires. “All of these policies are actually discouraging investment.”
The bleeding of dollar reserves is a recurring fear for Argentine governments. In 2011, the government of Cristina Fernandez de Kirchner tightened the rules for individuals seeking to buy dollars.
Alberto Fernandez criticized the controls around that time, saying they were an attack on personal freedom. But now, as president, and with international reserves at $42.5 billion, close to a three-year low, he is implementing a similar policy himself.
On Aug. 15, Fernandez publicly floated Pesce’s idea of cutting savers off entirely from buying dollars. About 4 million Argentines purchased dollars in the official market in August, a record high, according to a senior official.
The currency curbs, which are meant to stem an outflow of dollars, come on top of other existing economic restrictions, such as a ban on firing workers and a 30% tax on any purchases not made in pesos.
Argentina’s economy is forecast to contract 12% this year, according to the government’s recently-published budget proposal.
The split comes as Pesce and Guzman are leading Argentina’s negotiations with the International Monetary Fund, to which the nation owes $44 billion from a failed bailout given to the previous government. How the Fernandez administration plans to eventually unwind currency controls will be a focal point of the new IMF program.
In a statement to Bloomberg News, an IMF spokesman said “we are currently assessing these measures and will be discussing them with the authorities in the context of our ongoing dialogue.” The IMF is also reviewing the government’s 2021 budget draft.
Analysts warn that forcing private companies to restructure their dollar debt may also complicate the IMF talks.
“This is likely to make negotiations with the IMF more difficult, as they are effectively killing the private sector debt market and hence Argentina’s repayment capacity,” says Marcos Buscaglia, co-founder of Argentine consulting firm Alberdi Partners.
The country expects that most companies affected by the rule will be able to do so smoothly, Pesce said in an interview. The measure calls for companies to present a restructuring plan, but executing that plan will be voluntary, he added.
With Argentines stuck inside due to lockdown measures to curb the coronavirus pandemic, the new measures hit home: If citizens subscribe to Netflix or Spotify to relieve the boredom, those purchases will count toward the $200 they can purchase each month — and will be subject to a new 35% tax.
The measures are likely to further hit Fernandez’s popularity, which had already been falling as cases of the virus rise, Buscaglia added.
“It’s a real bomb to the Argentine middle class,” he said.
(Updates to add line on central bank chief comments on company restructurings in 20th paragraph. An earlier version of the story corrected the tax percentage in the 21st paragraph.)
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