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Emilia Torres González, a cleaner in Buenos Aires, needed $10,000 to cover the gap between the sale price of her old home and the cost of a new property. So her family took out a loan – in the local currency, pesos.
However, because of the country’s long history of economic chaos and tradition of devalued currencies, property purchases in Argentina are in dollars. The need to exchange her pesos put Ms Torres González at the mercy of government restrictions designed to combat a shortage of dollars in the economy.
Since last October, ordinary people have needed authorisation from the tax agency before they could buy dollars. In recent weeks, however, permission to purchase greenbacks has all but dried up.
So Ms Torres González was forced on to the black market – where the cost of dollars has soared to as much as 40 per cent higher than the official exchange rate.
“I had to ask friends and family for about 15,000 more pesos. Now I am trying to pay,” she says. As a result, her new house ended up costing 35 per cent more than she had planned.
Consequently the property market is paralysed, with a knock-on effect on construction.
Businesses have also been hit by the dollar curbs, as the government has clamped down on imports to prevent dollars flowing out of the country. Now, new regulations have targeted exporters, forcing them to repatriate their earnings faster.
Argentines have had five different currencies since the 1970s, including the decade-long dollar peg which collapsed after Argentina’s $100bn default in 2001. Economic turbulence, including hyperinflation and repeated devaluations, effectively wiped 13 noughts off the old “national currency”, in force from the late 19th century until 1969.
So it’s no surprise that popular confidence in the peso is shaky, and if people can save most prefer to do so in dollars.
Cristina Fernández, president, wants to change that, but official exhortations to “think in pesos” instantly sparked fears of a forced “pesification” reminiscent of the default aftermath.
After the stick, in the form of restrictions on dollar purchases, Ms Fernández tried the carrot. She announced that she would shift her dollar savings – some $3m – into pesos and urged ministers to follow suit. “It’s more profitable … in pesos than in dollars,” she said.
Argentines may be wary – they are estimated to have withdrawn more than $1bn in savings in the second half of May, underlining jitters amid data suggesting recession could be round the corner.
Exports, for example, fell in April for the first time since the end of 2009, while exports of cars – the country’s biggest manufacturing industry – sank 46 per cent in May. The export-earning farm sector is also under pressure after a severe drought followed by the heaviest rains in a century.
Martín Redrado, a former central bank president, says: “Argentina is not part of the international financial community so cannot access international credit markets and does not have [large] portfolio flows or investment flows.
“The trade surplus, which is decreasing, is the only source of dollars.”
As a result, the government has also introduced rules seeking to expedite the return of dollars that leave the country.
Since the end of April, many businesses saw the permitted period to repatriate export income halved to 90 days – a move that could hit the wine industry particularly hard.
“If I ask an importer to pay in 90 days, he’ll say ‘thank you’ and buy Chilean wine,” complained one producer who asked not to be named. He said the “nightmare” scenario of banks in turn slashing pre-export finance – essential to buy bottles and pay suppliers – had started to come true.
“If all the banks do, I am dead,” he said.
Carlos Clement, who runs a trade consultancy, calls the policy “jam today” and says the regulations reduce competitiveness. “Inflation has eaten into margins so exporters will either lose money, or stop exporting, or go bust.”
The government may be betting on slower growth to tame rampant inflation and rein in the currency problems.
“But the law of diminishing returns at some point means that more restrictions will lead to fewer dollars,” says Mr Redrado. “We are coming to the day of reckoning.”