The argentine authorities are introducing capital controls on speculative inflows even though Chile abolished its controls in 2001 amid controversy over their effect.
In June, the Argentine government began requiring banks to hold for one year 30% of capital inflows exceeding $2m a month. The banks must also inform the tax authorities about all inflows exceeding $50,000.
Esteban Fernández Medrano, a partner at Buenos Aires-based economic consultants Macrovision, said: “The Argentine government wants to maintain the peso at about 2.9 pesos per US dollar. It has been buying US dollars to achieve this but this has increased the peso monetary base and pushed up inflation.
To try to absorb the pesos, the government has introduced bonds with higher rates of interest. That, in turn, has attracted large speculative inflows, strengthening demand for the peso and undermining the government’s foreign exchange policy. It is now trying to stop these speculative inflows.”
Inflation in Argentina is expected to be more than 10% this year and nominal interest rates are around 15%.
Argentine economists predicted the restrictions would fail in the long-term because they were full of loopholes that could be exploited. For example, the restrictions will not apply to export credit and the government does not want to discourage Argentine residents from bringing money into the country.
Capital inflows into Argentina in the first quarter were $561m,against $579m in the whole of 2004.
In 1996, the Chilean authorities required banks to place an “unremunerated reserve requirement” of 30% on foreign investments of a speculative nature for one year. They removed the control in 2001 because of US lobbying prior to a free-trade agreement, and disagreement as to their effect.
