Minister of Treasury and Public Finance, Alfonso Prat-Gay, announced yesterday the removal of exchange controls. Since today, there will be neither restrictions nor taxes to purchase dollars for imports, tourism or saving purposes. Companies with commercial debt due to unpaid imports will have the option to purchase a dollar denominated bond issued by the Treasury or purchase dollars according to a timetable. The Argentine peso enters into a dirty float system where the central bank will preserve its right to intervene. The central bank expects to receive USD 15/25 billion in the coming weeks from loans granted by private international banks, use of the currency swap with Bank of China, and the liquidation of grain exports. Prat-Gay said the market will determine the value of the Peso, which he expects to be around the value of the currency in the informal exchange markets (14.25 pesos to the dollar for the blue chip swap compared to an official rate of 9.8 pesos).
We consider the developments as positive. A weaker currency will permit to recover competitiveness. No controls will improve business confidence. Tighter monetary and fiscal policies will be key to moderate the pass-through of the depreciation. The head of the central bank, Federico Sturzenegger, already announced the adoption of an inflation targetting scheme and allowed a 9 points increase to 38% in the interest rate of the short-term sterilisation instruments (so called Lebacs) in its first auction at market prices. The government will likely start to reduce subsidies in January. Wage negotiations, which will beguin in March, will be among the first tests.
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Paulo Roberto de Almeida