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Crusade against dollar hits a nerve in Argentina
June 19, 2012 / 5:31 PM / in 5 years

Crusade against dollar hits a nerve in Argentina

* Government virtually bans dollar sales to savers

* Angry would-be buyers turn to the courts

* Tax inspectors target buoyant black market

* President’s popularity, economy seen suffering

By Helen Popper

BUENOS AIRES, June 19 (Reuters) - An Argentine man from the seaside town of Mar del Plata could hardly have expected a rebuke from the president for trying to buy two five-dollar bills for his grandchildren.

Incensed when the exchange house turned him away because of President Cristina Fernandez’s strict controls on foreign currency purchases, Julio Cesar Duran - a lawyer - went to the courts.

“He was very cross. He said to me: ‘How’s it possible that at the age of 59 they won’t let me buy $10 to give to my grandchildren?'” said Duran’s attorney, Luis Alberto Moliterno, who defended savers hurt by a severe economic crisis in 2001-02.

Fernandez, a combative center-leftist, called Duran a “tight-fisted grandfather” on national television and hinted that he had planned to sue all along.

Her crackdown on the dollar, which Argentines have long used as a safe haven for their savings, has hit a nerve and may be deepening a slide in her approval rating, analysts say.

Several thousand middle-class protesters banging pots and pans gathered in front of the famous pink presidential palace two weeks ago. Some carried signs reading, “I‘m not allowed to do what I want with my money” and “No more shackles on the dollar.”

Pot-banging protests, or cacerolazos in Spanish, are highly symbolic in Argentina and stir memories of the economic and political meltdown a decade ago.

A judge refused to grant an injunction in Duran’s case, but Moliterno vowed to fight on.

“In 2001, they wouldn’t let people take their money out of the bank. Now they won’t let people protect themselves by saving in a more stable currency,” he said.

A decade after staging the biggest sovereign debt default in history, Argentina, Latin America’s No. 3 economy, has yet to return to global credit markets. That means Fernandez needs to keep dollars in the country to service the public debt.

Under the controls imposed days after she won a landslide re-election last October, prior approval from the AFIP tax agency is needed to buy dollars - even for small amounts.

Last month, authorizations for savings stopped completely and a new system allowing only purchases for foreign travel came into force. Further changes have been made to the system this week, without any formal announcements over the rules.

The severe restrictions on buying dollars at the official rate for saving or paying back loans in dollars has driven some buyers to pay 30 percent more in the black market - known locally as “the blue.”

In the housing market, where homes are priced and paid for in dollars, a new rate dubbed “the light blue” has emerged. Halfway between the official and unofficial rates, it is being used to agree transactions in pesos.

Others are coming up with more imaginative solutions such as buying tokens at casinos in neighboring Paraguay with a credit card before cashing them in for dollar bills to carry home.

“STOLEN STEREO”

The near impossibility of buying in the formal market has caused a gaping price spread with the black market, and trade volumes have shrunk.

Daily foreign exchange trade on the official spot market had averaged about $750 million. It is barely half that nowadays.

“The situation is similar to other crises we’ve seen, the difference being the AFIP restrictions,” one currency trader said, asking not to be named for fear of government reprisals. “People are going crazy trying to get themselves covered.”

Almost all the dollars on sale are being snapped up by the central bank as it works to replenish its foreign reserves and by importers who have permission to buy for specific purchases.

The black market’s rise to prominence worries officials because they fear it could fuel annual inflation estimated privately at 25 percent. The interior minister said recently that buying black-market dollars was “an illegal act” akin to buying a stolen stereo.

Off-the-books trade came to a halt altogether earlier this month due to government pressure on the so-called “caves” to sell dollars at lower rates.

Deals have tentatively resumed, but dealers are wary about selling to strangers and some are operating outside normal office hours to dodge the attention of government inspectors.

Uniformed AFIP officials continue to drop in on currency-trading desks in downtown Buenos Aires on a daily basis. To the dismay of traders - many of whom deal in both the formal and informal markets - they sometimes stay for hours.

“An inspector will come in, sit himself down to watch television and drink his coffee,” said another veteran trader, who also spoke on condition of anonymity.

CULTURAL BATTLE

Pro-government posters reading “Defending the nation’s currency,” with the image of the president’s late husband and predecessor as president, Nestor Kirchner, on a 100-peso bill, appeared in the streets of the capital last week.

Concerned the government could take further steps to “de-dollarize” the economy, savers and companies have been pulling dollars out of bank accounts, and deposits in the U.S. currency have fallen almost a third since October.

Government officials deny any plans to forcibly “de-dollarize,” saying they simply want Argentines to start thinking and saving in pesos instead.

Fernandez, a sharp-tongued career politician who renationalized the country’s biggest energy firm YPF last month and defends import curbs as a way to save local jobs, says the restrictions on dollars affect only a tiny minority.

“This is a cultural battle,” she said earlier this month, vowing to swap her own dollar savings - estimated by local media at some $3 million - for a fixed-term peso account.

AFIP data shows about 1.4 million Argentines have bought dollars for saving so far this year - about 7.5 percent of the working population.

But more pot-banging protests and legal action could unsettle Fernandez even if she is betting that the curbs on the dollar are unlikely to bother the lower-income voters who form her support base, analysts say.

“The warning lights are pretty strong right now,” said Mariel Fornoni of pollsters Management & Fit, who said a recent poll showed 60 percent of respondents opposed the dollar curbs.

Fernandez’s approval rating fell 5.2 points in the firm’s last monthly survey and was overtaken by the rejection rating for the first time since her re-election.

Critics say it is unreasonable to strong-arm savers into hoarding pesos instead of dollars or euros when inflation far outpaces interest rates on deposits in the local currency.

About two dozen legal complaints have been filed against the controls, though only a few have been upheld so far, and some experts say they violate rights enshrined in the constitution.

“My motive for buying dollars shouldn’t be the subject of government analysis under present circumstances, which - according to the president - are normal,” said constitutional lawyer Felix Lon.

Besides legal questions over the restrictions, economists say they could prove counterproductive by deepening a slowdown in key industries such as real estate and exacerbating jitters about the investment climate.

“News is coming in that every sector is feeling an impact,” said political and economic analyst Federico Thomsen, adding that Fernandez might ease the controls to slowly depreciate the peso and boost industry competitiveness later this year.

“That’s easier said than done of course. Once you start controls, you never dare relax them.”

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