May 7, 2013 / 9:31 PM / 4 years ago

UPDATE 2-Argentina takes new measures as black-market peso sinks

By Hugh Bronstein

BUENOS AIRES, May 7 (Reuters) - Argentina on Tuesday urged middle-class dollar savers and rich investors holding assets overseas to declare their greenbacks through a tax amnesty plan meant to shore up the country’s wobbly currency.

Argentines have sought safety in U.S. dollars rather than leaving their savings vulnerable to their country’s inflation rate, clocked at about 25 percent by private economists.

The peso has shed 22 percent of its value on the black market this year and central bank reserves are down 9 percent. With public spending on the rise ahead of October mid-term elections, the government’s need for dollars has become acute.

The announcement of the amnesty plan, under which those with dollars can buy bonds to be used to finance energy and infrastructure projects, came hours after the black market peso closed above the key psychological barrier of 10 per dollar.

The bond will have a 2016 maturity and a 4 percent coupon. Argentina will also offer a separate savings instrument backed by the central bank to be used to finance housing projects.

“We hope these measures will encourage those who have undeclared savings in dollars to use them to invest in transparent financial instruments,” Economy Minister Hernan Lorenzino said during a televised address.

Economist and former central bank chief Rodolfo Rossi said the measures will not convince Argentines to declare their greenbacks, much less entrust them to a government that has scared off investment with heavy-handed market interventions.

“The problem is not that people don’t know what to do with their dollars, but that they are running away from the peso,” he said. “The problem is that people do not trust the government.”

Earlier in the day the peso slumped 2.1 percent to close at a record-low bid price of 10.04 per dollar on the black market , marking a whopping 93 percent spread over the official interbank peso, which was trading at 5.21.

The government of the South American grains-exporting country virtually banned foreign currency purchases a year ago to stem capital flight as well as to safeguard dollars to pay for imports and repay debts.

Dollar demand has increased due to fears the peso could start depreciating at a faster rate. Argentina has a long history of devaluations and economic crises.

Economists say investors are putting off projects due to financial uncertainty, which has included speculation about a devaluation after October mid-term elections.

Argentine President Cristina Fernandez dismissed the possibility of a devaluation during a nationally televised speech late on Monday, arguing that it would only favor exporters and hurt the poor.

“Those people who aim to make money with a devaluation at the people’s expense are going to have to wait for another government,” Fernandez said.

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