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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.

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The main reason the dollar continues to be a must-have savings currency is due to high domestic inflation, estimated at around 20 to 25 percent by private consultancies (although the Argentine government’s national statistics body, INDEC, puts the figure closer to 10 percent).

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Journalist Adrián Murano recently wrote an article for local current 
affairs magazine Veintitrés about the country’s need to move to a full peso economy – an idea promoted by the government as it has ramped up controls.  

In a bid to get the population thinking in local currency, President Fernández de Kirchner stated last week that she would change her savings, thought to total over $3 million, from US dollars into pesos.

But Mr. Murano isn’t sure politicians are going about the pesoization of Argentina’s economy in the right way.

“Generating a peso culture isn’t just about telling people they need to start thinking in pesos,” Mr. Murano says, “but more about generating the economic conditions for the peso saver. What the government is doing is trying to create the culture before the conditions are there.” Until inflation is brought under control, confidence will continue to falter.

Andrés Tarrio, 35, from the Coghlan neighborhood, understands up to a point why the government wants to act. “We’re so used to thinking in dollars, after so much time, that it would be really hard for people to change,” he says. “I think the only way is to force people to make that change. But there are [different] ways of implementing this.”

Overhauling the dollar addiction won’t be easy, given the US currency’s well-established position. The North American money is used in everything from plane ticket purchases (amended in the last few days by state carrier Aerolíneas Argentinas) to real estate.

“We bought a piece of land for $500,000 the other day,” explains Daniel, 60, an architect working in the well-healed Buenos Aires neighborhood of Belgrano. “We spent about two hours in the bank counting and sorting the money. Now multiply that by four or five if we start having to pay in pesos. We’ll be spending the day there.” Argentina has a largely cash-reliant system, and large payments in cash are not unusual.

The sudden changes, coupled with a lack of communication on the part of the government, threaten to panic a population that can easily get jittery about money. Argentines can be fatalistic about the future and some say the country has tended to crash in ten-year cycles, which does little to allay fears.

Although few commentators believe Argentina is heading for a repeat of 2001, the economy in the first quarter of 2012 has certainly slowed in comparison to the 8.8 percent growth it enjoyed last year.

Not to be banked on

Argentines may want dollars but the harsh lessons of the past mean cash often remains outside the formal economy because savers hoard it rather than keeping it in the system. As banks have a reputation for letting the population down, many would rather keep savings under the bed, or in a safety deposit box.

“I know that the dollars in my box are actually there,” says Franco, an IT worker who lives near the city center. “If you have a bank account in dollars your money doesn’t exist – it’s just virtual money.”

Gaby, who describes her background as lower middle class, also has a security box. She says she’s only able to save – not an option for much of the country – because she’s a professional without a family. “I don’t make any interest on the money I keep in a safety deposit box,” she says. “But it’s safe there. I think everyone is going to start asking for one soon.” Renting the safety deposit box costs her close to $450 a year.

The Central Bank estimates that around 10 percent of the population puts savings aside in foreign currency, although numbers are hard to predict accurately. Dollar flight – whether depositing abroad or using local security boxes – may be a relatively small number of the population, but the cash amounts are growing. Some $21.5 billion left the formal economy in 2011, according to the monetary authority, almost double the figure of the previous year.

The dollar controls have done nothing to stimulate investment and any future stagnation is likely to have the population running for the tried and tested security blanket of the dollar – if it can get it.

“The trends right now aren’t looking good,” says Silvina Vatnick, president of the Centre for Financial Stability, headquartered in Buenos Aires. “It’s going to be a rough time.”

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