By Daniel Politi
Trying to put the brakes on a financial crisis that has engulfed Argentina in recent weeks, President Mauricio Macri imposed new restrictions on access to foreign currency.
The restrictions, which took effect Monday, are a remarkable about-face for Macri, who came into office promising to open up the economy but is instead putting in place the types of measures he has long criticized as he heads into October’s presidential election.
His move reflects just how much Argentina’s economy has gone into a tailspin in the weeks since a nationwide primary last month, in anticipation of the presidential election, yielded a surprising result: The main opposition candidate, Alberto Fernández, had a surprisingly strong showing over Macri.
Fernández is running on a ticket with the former president, Cristina Fernández, as his vice president. Investors fear that if he wins the October election, it would amount to a return to the interventionist economic policies that came to mark her back-to-back administrations from 2007 to 2015.
In those years, the government distributed aid to the poor without budget discipline, yielding enormous deficits that caused investors to flee. A weakened currency raised the prices of imports. By the time Macri took over, Argentina was awash in red ink and inflation.
He began a round of budget-cutting, which infuriated the poor without yielding the economic growth he promised. But the possibility of the return of left-wing populism has international markets worried that Argentina is headed back to excessive spending.
As investors have stampeded for the exits, the currency has plunged anew.
One of Macri’s first measures after taking office in December 2015 was to get rid of restrictions on the purchase of foreign currency and the free flow of capital.
But his push to open the economy didn’t usher in a new wave of investment. Conditions have since spiraled.
So the new restrictions on capital “ended up being inevitable,” said Martín Kalos, chief economist of Elypsis, a local economic consultant organization. “Macri needed to take drastic and pragmatic measures for the crisis not to continue and worsen from here to December.”
“There are more people in the banks and that makes sense because in moments of crisis and uncertainty everyone is looking to protect themselves,” Kalos continued. “But there is no panic because the government has really made a point of guaranteeing that anyone who wants to withdraw their savings can do so.”
On Monday the new restrictions at least had some of the desired effect as the peso strengthened slightly.
Banco Galicia on Corrientes Avenue in Buenos Aires was busier than normal Monday.
“I was surprised at how things were relatively calm,” said Walter Gastrell, a 78-year-old retiree, who went to the bank to see what the reaction would be to the currency restrictions. “With all the experience we’ve had with crises, this feels like history repeating itself.”
Gastrell said he was currently debating whether to take his money out of the bank, fearing there may come a point when the government would limit withdrawals, as has happened before in Argentina.
The value of the peso has plunged around 25% since the primary amid a broad sell-off of Argentine assets and debt. Argentina’s Central Bank has also been hemorrhaging reserves as it has tried to shore up the peso.
Speaking in a television interview Sunday night, Hernán Lacunza, the economy minister, made clear the new measures were taken to prevent the crisis from worsening.
Under the restrictions, which were unveiled Sunday, Argentines are limited to buying no more than $10,000 a month in foreign currency while corporations require authorization to buy any foreign currency that is not for international trade.
Companies must also repatriate earnings from foreign sales within five business days.
The government “considered it necessary to adopt a series of extraordinary measures aimed at assuring the normal functioning of the economy, sustain the level of activity and employment and to protect consumers,” said the official announcement of the new controls.
“Capital controls are not ideal, but they are necessary if you want to put the brakes on the foreign exchange rate,” said Marina Dal Poggetto, executive director at EcoGo, an economic consultant group in Buenos Aires.
The key to know whether the measures are working will come in the next few days when data will show whether bank withdrawals that had been accelerating since the primary slow down, Dal Poggetto said.
Although Fernández has been highly critical of Macri’s running of the economy and the $57 billion line of credit he sealed last year with the International Monetary Fund, he has yet to detail what he would do to turn around the economy.
Many, however, are not optimistic that economic measures can solve what is essentially a political problem.
“You have a very weakened president and a candidate who is not the president yet,” Dal Poggetto said. “It’s difficult to build confidence.”
The new restrictions came mere days after Argentina said it would seek to defer payments on $101 billion of debt amid rising fears that the country may eventually end up defaulting on its debt. Argentina has defaulted on its sovereign debt eight times since it obtained independence from Spain in 1816.