Argentina clamps down on public access to US dollars
Argentina's government has implemented currency controls to constrain citizens' ability to sell pesos and buy dollars, reigniting a crisis of confidence in the currency.
More than a decade after Argentina’s default, the South American nation still suffers from a crisis of confidence in its own currency, highlighted by the middle class's panic over the government’s clampdown on their access to US dollars.Skip to next paragraph
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The American currency is seen as more stable, and therefore more desirable for savings, than the inflationary peso, but the government is working to keep dollars in its own coffers in order to service its debt.
The currency controls implemented by President Cristina Fernández de Kirchner’s administration have been largely sparked by the government’s reliance on the Central Bank to lend it money to pay creditors – an unusual relationship initiated in 2010 due to the country’s continued exclusion from international markets since the 2001 default that ruptured its reputation abroad.
“Argentina has not done enough homework to be able to participate in international capital markets,” says Federico Thomsen, an economic analyst who advises foreign investors. “This is where there’s no relationship with the IMF [International Monetary Fund]. Argentina cannot comfortably issue debts abroad without legal obstacles and there aren’t many domestic lending options.”
As recently as last week, US President Barack Obama was calling for Argentina to repair its relationship with the IMF. The country mainly borrows money from its national pension fund, which it nationalized in 2008, alongside the central monetary authority. Lenders typically require their repayments in an international currency.
At the end of May, the tax office (AFIP) introduced a series of hoops that residents will have to jump through in order to travel abroad with foreign currency, in an attempt to keep dollars in the country. Argentines are finding that everyday requests to change pesos into dollars, which AFIP also needs to approve, are also being refused. This follows controls in April that stopped peso account holders from withdrawing money from their Argentine bank accounts using debit cards overseas.
The new rules, which are meant to be temporary, have caused uproar among the country’s mostly anti-government news channels. But the protests, which have seen small but noisy groups taking to the streets of the capital’s wealthier suburbs, as well as cities such as Mendoza, Rosario, and Tucumán, show just how deep-seated and complex Argentina’s relationship with the US dollar remains.
A long history of economic mismanagement has done nothing to quell unease in the domestic currency, starting with the mega-devaluation of the 1970s known as ‘el Rodrigazo’ through to the corralito of 2001, an economic meltdown which saw bank accounts frozen and life savings held in dollar accounts suddenly converted into heavily devalued pesos.
Since the 1990s, the peso had been pegged to the dollar. At the time it was easy to change local money into dollars because the value was the same, and people started saving in foreign currency, anticipating another downturn in fortunes.
With the 2001-02 crash, Argentines took to the streets of Buenos Aires and then president Fernando De La Rúa, unable to cope with the unrest, fled from the roof of the presidential palace via helicopter. Despite the economic recovery and recent boom years, the psychological scars from the period are still evident.
“Due to what happened in 2001, people easily get paranoid and everyone wants to go out and buy dollars,” says Celeste, a 27-year-old professional from Buenos Aires who, like most people interviewed, didn't want to give her surname.
“AFIP is now blocking 100 percent of my attempts [to get dollars]. I went to the bank recently and I couldn’t even buy ten dollars,” Celeste says. She is now considering the dólar blue, the illegal exchange market, at a less favorable rate.