Argentina’s exchange controls could be in their last days

The hodgepodge of currency controls implemented in Argentina is probably on its last days.

The libertarian economist Javier Milei and the candidate of the pro-business coalition Patricia Bullrich, two of the main contenders for the presidency of Argentina in the first electoral round this weekend, have promised to end the infinite exchange rates that coexist in the South American nation.

For years, the country has limited the daily decline of the peso through currency controls and import restrictions to protect dwindling reserves. The official exchange rate, which is used to import products such as medicines, is 350 pesos per dollar, while the black market rate is 950 pesos, almost 40% weaker than in mid-August, when the Government devalued last time the official weight after Milei’s surprise victory in the primary elections.

The ruling party, represented at the polls by the Minister of Economy, Sergio Massa, has already begun to eliminate some of the more specific exchange rates it implemented, such as the Coldplay dollar, for concert organizers, and Malbec, for agricultural exports. .

Milei, considered the favorite for Sunday’s first round, has promised to eliminate the local currency and replace it with the dollar. Some economists warn that this would cause a temporary increase in inflation, which already exceeds 130%.

A devaluationit’s already late” and will likely reach up to 50% of current official levels, said Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc. “The trend is for the peso to continue depreciating, and once dollarization is announced or confirmed, it should depreciate even more”.

Concern about the proximity of the elections has already taken its toll on the peso. This month, the exchange rate on the parallel market hit a record high of 1.040 per dollar as Argentines rush to buy the US currency ahead of the October 22 presidential election.

What Bloomberg Economics says

“It is extremely difficult to estimate the rate at which pesos would be converted into dollars, but it is reasonable to expect that rate to be weaker than the current blue dollar. “This has fueled the demand for dollars by Argentines who want to protect their purchasing power in the face of the elections.”

Adriana Dupita, economist for Latin America

Below is a summary of the most used exchange rates in Argentina and their prices ahead of Sunday’s elections:

Official exchange rate

Rate: 350 pesos per dollar

Argentina’s official exchange rate is highly restricted. Legally, people can buy a maximum of US$200 a month at a bank at the official exchange rate and must pay three taxes that double the cost. Economists predict a sharp devaluation of the official exchange rate after this weekend’s general election.

“Dolar blue”

Rate: 980 per dollar

The exchange rate that most Argentines access, the “blue dollar”, is a free floating exchange rate, entirely in cash, which can be obtained inside stores, in kiosks or in inconspicuous offices, or with a contact willing to exchange dollars for pesos, which sometimes requires large shopping bags or backpacks to carry wads of local bills.

Cash with settlement

Rate: 932 per dollar

In Argentina there are also free floating exchange rates for investors who buy stocks and bonds. For local transactions, an exchange rate known as the “MEP dollar” is used, while the cash settlement rate, or “CCL dollar,” is used for transactions that end abroad, providing an approximation rather than a reference. clear.

tourist dollar

Rate: 735 per dollar

Argentines are charged three different taxes amounting to 100% in addition to the official exchange rate when they use their Argentine credit or debit card to make a purchase in foreign currency, a strategy of the current Government to discourage spending abroad.

luxury dollar

Rate: 700 per dollar

Wealthy Argentines who purchase luxury items, such as private jets, sports cars, yachts, watches and premium alcohol, have to pay additional taxes of almost 100% on top of the price of the imported goods.

Technological incentives

Technology companies can retain 30% of dollars from sales abroad instead of having to convert them to pesos. The dollars go toward employee salaries.