Argentina Imposes Currency Controls As End Game Beckons

After days spent burning through reserves in an effort to prop up the peso and following a week that saw the country postpone $7 billion of payments on some notes and propose a “voluntary reprofiling” on $50 billion in long-term debt, Argentina is implementing currency controls.

Specifically, exporters are under a deadline to repatriate foreign currency and authorization will be required for institutions to sell pesos in the FX market. To wit, from the central bank:

The measure establishes that exporters of goods and services must liquidate their foreign exchange earnings in the local market. For exports made as of September 2, 2019: Dollars must be settled at most 5 business days after collection or 180 days after the shipment permit (15 days for commodities). While for official exports before September 2, 2019.

Resident legal entities may purchase foreign currency without restrictions for the importation or payment of debts upon expiration, but they will need compliance from the Central Bank of the Argentine Republic to purchase foreign exchange for the formation of external assets, for the precancelation of debts, to turn abroad profits and dividends and make transfers abroad.

S&P and Fitch of course declared the country in default this week following the postponing of bill payments, and talks are underway with the IMF, which is knee-deep in this debacle, and was set to disburse more than $5 billion to the country from the record $56 billion package agreed last year.

Things fell apart on August 12 after President Mauricio Macri suffered a shocking landslide loss in a primary election, which all but guaranteed a victory for the Kirchner-allied Alberto Fernandez in October.

Read more: In Argentina: Total Meltdown

Since then, the peso has depreciated by some 30%, local stocks have been cut in half and CDS spreads have ballooned out to a cartoonish 3,600bps.

“Since the primaries international reserves have shrunk by US$10bn, the government has had a hard time rolling over hard-currency liabilities, and dollar deposits in local banks have dropped by one-tenth”, Goldman notes, recapping the last two weeks, which also saw short-term rates hiked to 80%.

(Goldman)

Fernandez this week said the country is in “virtual default”.

“It concedes that access to the domestic capital market is extremely limited at present [and] its timing comes as a surprise and market participants may be concerned about whether simply reprofiling this debt will be enough”, Credit Suisse wrote Wednesday, following the announcement of the delayed bill payments and the debt reprofiling.

BNP struck a decidedly dour tone in a piece called “The beginning of the end”. “Following the announcement, we do not rule out an increasing demand to convert time deposits into US dollars”, the bank said Thursday. “We expect potential dollarization of USD16bn, equivalent to more than 100% of the net liquid international reserves”.

(BNP)

As far as the IMF is concerned, it’s hard to see how the fund can possibly extricate itself given how pot-committed they are. As Edwin Gutierrez, head of EM sovereign debt at Aberdeen Asset Management told Bloomberg earlier this month, “it’s the old saying about if I owe you $1,000 it’s my problem, but if I owe you $1 million, it’s your problem”.

Later, sources said commercial banks that faced a liquidity crunch from elevated withdrawals on Monday could tap the central bank for funds. BCRA also reportedly requested that banks try to collect outstanding loans in order to bolster liquidity. Commercial banks have been asked to extend their hours of operation by two hours to 5 PM.

Full notice:

Sunday 1st of September. The Board of the Central Bank of the Argentine Republic issued measures that establish parameters in the exchange market, which aim to maintain exchange stability and protect savers. He did it through communication A6770 . The rule regulates income and expenses in the exchange market. This regulation maintains full freedom to extract dollars from bank accounts, both for individuals and legal entities, does not affect the normal functioning of foreign trade and does not introduce any travel restrictions.

The measure establishes that exporters of goods and services must liquidate their foreign exchange earnings in the local market. For exports made as of September 2, 2019: Dollars must be settled at most 5 business days after collection or 180 days after the shipment permit (15 days for commodities). While for official exports before September 2, 2019.

For expenses, there are no restrictions for the purchase of foreign exchange for foreign trade.

Resident legal entities may purchase foreign currency without restrictions for the importation or payment of debts upon expiration, but they will need compliance from the Central Bank of the Argentine Republic to purchase foreign exchange for the formation of external assets, for the precancelation of debts, to turn abroad profits and dividends and make transfers abroad.

Humans will not have any limitations to buy up to USD 10,000 per month and will need authorization to buy amounts greater than that amount. Transactions that exceed USD 1,000 must be made with a debit to an account in pesos, since they cannot be carried out in cash. Nor will it be allowed to transfer funds from accounts abroad of more than USD 10,000 per person per month.

Non-resident human and legal persons may purchase up to USD 1,000 per month and may not transfer funds from dollar accounts abroad.