(MENAFN- AFP) Argentina abandoned an unpopular ban on buying dollars Friday allowing citizens to once again hedge against the plunging value of the peso by hoarding their savings in foreign currency.The move came one day after the Argentine peso suffered its worse single-day fall in more than a decade, recalling memories of the country's 2001 financial crisis and increasing pressure on the government. President Cristina Kirchner's cabinet responded by dropping the unloved 2011 rule restricting access to foreign exchangeBut that risked further increasing downward pressure on the peso.Jorge Capitanich, the leader of Kirchner's cabinet, said the government has decided "to authorize the purchase of dollars for spending or saving."Capitanich argued that the restrictions had always been temporary and had served their purpose. He said that the change would take effect beginning Monday.
At about eight pesos to the dollar, he said the Argentine currency "has reached an acceptable level" under a policy of "managed flotation."The peso has sunk nearly 19 percent so far this year, and earlier this week, the government moved to cut back spending abroad by Argentines, to stem the drain on reserves. The government restricted the number of purchases from abroad made over the Internet to two per year, at a maximum value of $25 each, above which it would impose a 50 percent tax.The Central Bank of Argentina's rigid management of the official exchange rate over several years has had a steep cost to foreign exchange reserves, which have dwindled to $29 billion currently from $52 billion in 2011.After spending another $120 million to shore up the peso on Tuesday, the bank appeared to abandon the effort to protect its stockpile of dollars.Economic experts said the effective devaluation was unavoidable."They wanted to provoke a shock in the markets to create a bit more public confidence," said Aldo Pignanelli, a former head of the country's central bank.Dollars as a hedge against inflationCurrency limits have been hugely unpopular with Argentines, who for 40 years had been in the habit of hoarding dollars as a hedge against inflation.Many will also purchase a sizeable supply of dollars before departing on holiday in the current southern hemisphere summer. The policy change will permit them to do so without having to resort to the black market, or face punishing bank card surcharges imposed by the government that have been as high as 35 percent.The restrictions on the purchase of dollars allowed a parallel black market to flourish, where the greenback has been trading at about 13 pesos.By freeing up the peso and exchange controls, the central bank could conceivably calm the market by convincing Argentinians that they could freely exchange their pesos anytime. That in turn could narrow the gap between official and black market rates and restore some confidence, and competitiveness on global markets.Economists warn, however, that letting the peso sink increases the risk of even greater inflation, or even hyperinflation.Government figures show the current rate of inflation to be 11 percent, but experts believe it is really closer to 28 percent, and say it could climb to 30 percent by next year.Argentina's teetering economy has proven to be a major political liability for Kirchner, who has two more years left in office.A lawyer by training, she has faced rising criticism of her handling of the economy, including the critical shortage of hard currency, sluggish growth and a widening budget deficit.The latest economic upheaval comes 12 years after Buenos Aires roiled finance markets by defaulting on nearly $100 billion in bonds, an earthquake which unleashed a tidal wave of capital flight and increased this Argentina's runaway inflation.Argentines remain traumatized by the 2001 collapse, which wiped out the savings of millions of middle class people and saw the end of the peso's fixed exchange rate to the dollar.Years of economic uncertainty since have meant that rich exporters of agricultural goods like soy and corn have been reluctant to liquidate their dollar reserves.Meanwhile the lack of global confidence has meant the country missed the gush of foreign capital into emerging markets over the past decade.This in turn made it hard for the central bank, which is desperate for dollars, to gather hard currency. Kirchner's economic management has angered Argentina's business class through her failure to control inflation, her protectionist economics, import restrictions, the nationalization of companies such as energy giant YPF, and foreign exchange controls.The poor, however, revere the Peronist president for her fight against poverty, generous social welfare programs and improved retirement pensions.Kirchner has seen her approval rating slide to about 30 percent since she was swept back into office for a second term in 2011. Her term ends in 2015.
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.