Argentina lifts currency controls, floats peso in bid to boost economy

BUENOS AIRES, (Reuters) – Argentina said yesterday it was lifting its currency controls and would allow the peso to float when markets open, setting the stage for a sharp devaluation, following vows by new President Mauricio Macri for reforms to spur economic growth.

Macri, a free-markets advocate who took office last week, wants to boost exports and regain investor trust in Latin America’s third largest economy, damaged by heavy state intervention and a lack of trustworthy official data.

Argentina’s previous leader, Peronist Cristina Fernandez, used central bank reserves to prop up the peso while restricting access to the artificially inflated rate, spawning a currency black market.

“He who wants to import will be able to do so, and he who wants to buy dollars will be able to buy them,” Finance Minister Alfonso Prat-Gay said.

Farmers in Argentina, a grains-exporting powerhouse, have been waiting for the peso to weaken before selling stockpiles of soybeans. Manufacturers have argued for controls to be lifted so they can import crucial parts for production.

Local and foreign investors, meanwhile, might be inspired to bring money back to the country if Macri’s reforms succeed in reducing imbalances in the economy in the long-run.

Asked what he expected the exchange rate to be when markets open, Prat-Gay said there was “no magic number.”

However, the most realistic level at the moment was the blue-chip swap rate, used to buy Argentine assets traded abroad. That rate is currently around 14.2 pesos per dollar, compared with the official exchange rate of 9.8275, implying a devaluation of around 30 percent.

“Let’s see what happens tomorrow. The policy will be what economists call a ‘dirty float’,” Prat-Gay said. “There will be fluctuations in the exchange rate but there will also be a central bank with the necessary tools to buy if the currency weakens too much or sell if it strengthens too much.” Jorge Mariscal, chief investment officer for emerging markets at UBS Wealth Management in New York, said it was positive to see the new government immediately tackling the currency issue.

“The exchange rate was very important because it will eliminate all the distortions that were in the market,” he said.

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