Argentina imposes currency controls to stem sharp drop in peso

Buenos Aires, Argentina – Argentina‘s embattled government has imposed currency controls intended to rein in a financial crisis that has damaged the country’s standing with investors, taken a bite out of its reserves and driven more people to an economic precipice.

Companies now need to get permission from the Central Bank of Argentina to buy foreign currency or precious metals, and to transfer that money abroad. Exporters must liquidate their foreign exchange earnings in the local market within five days, the Central Bank advised in a press release.

Individual Argentines are now limited to freely buy up to $10,000 a month. If they wish to purchase more, they need the central bank’s permission. There are no limits on how much companies or individuals can withdraw from their bank accounts.

In a decree made public on Sunday, President Mauricio Macri‘s government said it had adopted a “series of extraordinary measures” to keep the economy functioning, protect employees and consumers.

“It’s necessary to adopt transitional and urgent measures to regulate the exchange regime with greater intensity,” it stated in the decree.

Minister of the Treasury Hernan Lacunza is expected to release more details on Monday morning.

The Argentine government’s attempt to halt the downward spiral of its currency comes after another brutal week for the South American nation, that has been in the grip of a recession for over a year. On August 11, the pro-market Macri suffered a stunning 15-point loss in the presidential primaries to centre-left opposition leader Alberto Fernandez, and his running mate, former President Cristina Fernandez de Kirchner.

The following day, on August 12, the Argentine stock market took a precipitous nosedive, dropping more than 30 percent, while the peso lost more than 25 percent of its value against the US dollar. So far this year, the peso has fallen by more than 36 percent.

‘A lot of fear’

It was a political and economic slap in the face for Macri, who had assumed office in 2015 on a promise to revive a flagging economy and root out corruption, but whose neo-liberal policies cut too deep for most Argentines.

He blamed the economic backlash following the primaries on voters who supported a populist ticket, a line that he later regretted as he rolled out a series of economic measures designed to alleviate the economic pain. But with inflation running at more than 50 percent over the last year, and with unemployment and poverty on the rise, people have become increasingly frustrated in the lead up to the general elections, scheduled for October 27.

Gabriel Rubinstein, an economist and former representative of the Central Bank of Argentina, said the measures announced on Sunday are “negative”, if not unexpected, but he predicted that they will limit the flight of dollars.

“There is a lot of fear, so people buy dollars, all in the anticipation that the government is going to change,” Rubinstein told Al Jazeera. “I think they are emergency measures that can be justified in the context of the great uncertainty that is playing out in Argentina, the fear, until a new government takes power,” he said. “This government, in general, the assumption is that it’s over.”

Last week, following a previously scheduled visit by the International Monetary Fund (IMF), which has a $57bn standby loan agreement with Argentina, the government announcement that it needs more time to pay off approximately $100bn in debt – a “reprofiling”, as Lacunza put it, that would affect large lenders, including the IMF.

The move prompted Standard and Poor’s, one of the world’s top three credit rating agencies, to slash Argentina’s long-term debt rating on Thursday and temporarily declare the country in “selective default”.

“We have taken responsibility of the debt to defend the stability of the currency in the short, medium and long term, and we are going to work without speculating, which means not kicking the problems into the future,” Macri said on Thursday.

‘People just don’t have money‘

The fall in the value of the peso has hurt many Argentinians.

“People are a thermometer,” said Julio Roldan, 56, a street vendor with a stand outside Buenos Aires’ ornate Retiro Station selling fried dough sticks known as churros. “The thing is that people just don’t have money,” said Roldan. “This last week was horrifying. Nobody sold a thing. Nobody.”

The central bank has tried to bolster the peso, which traded at 59.5 to the US dollar at the end of last week, by tapping its foreign currency reserves. Some $3bn drained out on Thursday and Friday, leaving it with less than $15bn, according to the Bloomberg news agency.

Fernandez, for his part, last week blamed the “social catastrophe” unfolding in Argentina on the current government and the IMF, and said it’s their responsibility to reverse it.

“These neoliberal recipes they put in your heads, never again,” said Cristina Kirchner at a book event on Saturday, her first public appearance since the presidential primaries. “Let’s try to have a project in this country that is enduring and viable.”

Hernan Letcher, director of the Argentine Centre for Political Economy, said that if the government had intervened earlier to demand that exporters sell their foreign currencies in the local market, it would not have been forced to impose the kinds of currency controls on individual Argentines it had so harshly criticized the previous Kirchner government for.

“I think this is in the right direction,” Letcher told Al Jazeera. “We have to see if this is enough and they manage to control the situation, or if it does the opposite, which is [to] deepen the lack of confidence, and produce that which the government is obviously trying to avoid, which is a run on the banks.”