* Gov’t cracks down on black market trade
* Dollar demand strong among private savers
* Very few forex purchases allowed at official rate
By Jorge Otaola and Walter Bianchi
BUENOS AIRES, May 17 (Reuters) - Argentina’s peso kept sinking on the black market Thursday although volume was thin due to stepped-up government controls aimed at discouraging illegal currency trades.
Traders said tax agents took posts inside foreign exchange houses, where many black market deals take place, while plain-clothes police officers strolled through the financial district in Buenos Aires to try to discourage backroom operations.
In the last week, the AFIP tax agency has severely limited foreign currency purchases at the official exchange rate, sending many individuals and small business people to the parallel market.
The peso closed at 5.56/5.59 per dollar on the black market, down 1.8 percent according to the ask price.
At the same time, the local currency declined just 0.11 percent on the formal, interbank market to end at 4.45/4.4525 per dollar.
“The parallel rate is shooting up because purchases on the official market are closed,” one foreign exchange trader said.
The spread between the two markets widened to 26 percent - more than quadrupling since mid-October, just before the government imposed the strict currency controls.
Argentina’s inflation already tops 20 percent a year and shows no sign of falling despite an economic slowdown. Analysts say the black-market exchange rate could further stoke inflation pressures and prompt savers to withdraw their dollar deposits from banks, which is happening but at a very slow pace.
Burned by spates of heavy government intervention and financial turmoil over decades, Argentines tend to save in greenbacks and they often smuggle them out of the country as well to dodge taxes and potential deposit freezes.
The AFIP vowed this week to step up its fight against illegal trades, cracking down especially on people who buy dollars at the official rate and sell them on the black market.
The implicit exchange rate used to buy Argentine bonds and shares that can be sold overseas for dollars fell to a record low of 5.95 pesos per dollar, traders said. (Writing by Hilary Burke; Editing by Theodore d’Afflisio)