UPDATE 1-Argentina jacks up currency controls to stem reserves loss
BUENOS AIRES Dec 3 (Reuters) - Argentina toughened its currency controls on Tuesday to stem a dramatic depletion of its international reserves by making it more costly for Argentines to travel abroad and buy foreign goods with their credit cards.
Shut out of financial markets since a massive default a decade ago, the Argentine government for three years now has had to burn up reserves generated mainly by grain exports to finance its imports and pay debts.
A measure published in the official gazette by the tax collection agency AFIP raised the tax on credit card purchases outside the country, tourist holiday packages and plane tickets to 35 percent from 20 percent.
The same 35 percent tax will now be levied on the limited amounts of dollars that Argentines can buy from the government to travel, known as the tourist dollar.
"We believe there is a drain on foreign currency through tourism," Cabinet chief Jorge Capitanich told reporters. "We have to manage our reserves very carefully to guarantee the flow of industrial inputs needed to boost economic growth."
Argentina's international reserves have fallen almost 30 percent this year due to a scarcity of export dollars and investment by foreigners who distrust President Cristina Fernandez's heavy-handed interventionist policies.
In April, central bank reserves fell beneath $40 billion for the first time since May 2007 and have since fallen further to below $31 billion, down from $43.3 billion at the end of 2012.
If the government cannot stop the drain, it may find itself without enough foreign currency to honor its debts or pay for the country's energy imports, eventually leading to economic collapse in the world's No. 3 corn and soybean exporter.
The government also uses dollar reserves to intervene in the currency market to prop up the official value of the peso.
Reserves are further depleted by Argentines buying goods overseas on trips and on-line. Strict currency controls introduced in 2011 have led locals to shop more overseas with credit cards, which have to be paid in U.S. dollars.
Argentines buy dollars to shield their savings against rampant inflation - which private economists say is running at around 25 percent - and the currency restrictions have fueled a flourishing black market where the dollar trades at more than 50 percent higher than the official rate.
The peso closed Monday at 6.1565 to the dollar and traded at 9.22 pesos on the unofficial market. With the 35 percent tax, the tourist dollar for travel will cost about 8.31 pesos.
Economists estimate tourism depletes the central bank's reserves by between $600 million and $800 million a month.
But some say currency controls just create more distrust of the government and will not solve its dollar crunch.
"This is a ridiculous step that again hurts the private sector," said economist Jose Luis Espert, who said the root of the problem is the third-largest fiscal deficit this decade.
"The government is financing it by printing pesos, but Argentines don't want pesos and spend them on travel or convert them into dollars," Espert said.
Expectations that the foreign currency drain will force the government to devalue has led grain exporters to retain stocks to hold out for a better rate, further depriving the central bank of dollars.
After a decade maintaining an overvalued peso to keep the lid on inflation, the central bank has accelerated its gradual devaluation of the peso on the interbank market in recent weeks, fueling further speculation that an official devaluation is on the cards.
According to government estimates, farmers are holding back as much as $6.3 billion worth in soybean exports.
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