Argentina tightens currency controls to dampen demand for greenback

Alberto Fernandez casts his ballot in the primary election in August 2019. Credit: Alberto Fernandez.

Argentina’s decision this week to expand restrictions on foreign exchange to protect its dollar reserves is largely due to the coronavirus pandemic’s impact on the country’s already overburdened economy, Waldo Perez, president and chief executive of Neo Lithium (TSXV: NLC; US-OTC: NTTHF), told The Northern Miner.

“The pandemic has had a very important role to play in this policy move – they are temporary measures,” he said in an interview from Buenos Aires, noting that with more than 589,000 cases and 12,229 deaths the country is at the peak of the crisis.

The new measures announced on Sept. 15 include a 35% tax on dollar purchases by retail savers and on credit card purchases. This will be on top of the previous 30% “solidarity tax”. Restrictions limiting people to buying no more than US$200 a month remains in place.

Bloomberg, citing data from Argentina’s central bank, reported that 3.9 million people, nearly 10% of the country’s population, purchased U.S. dollars in July as the peso has lost value.

The news agency also reported that Argentina’s Economy Minister, Martin Guzman, said on Sept. 13 that the country plans to ask for a delay in repaying the International Monetary Fund until 2024. It is currently trying to renegotiate a $44 billion financing arrangement it has with the fund.

The country is in its third year of recession and is plagued by high inflation and a weakening currency.

Neo Lithium’s Perez noted that for his company, which is working on a feasibility study on its 3Q lithium project, the new currency controls will not be a problem, but acknowledges that for companies with mines in production it will be challenging.

“I dare say it’s convenient for me, I bring dollars from outside the country and convert them into pesos and I get more pesos and I can execute my program more cheaply,” he explains. “The problem these restrictions will have is for companies that have already built a mine and are exporting.”

But the mining executive believes the restrictions will be short-term “and have to be taken with a grain of salt.”

“The government has just come out of negotiations with debt holders and are beginning negotiations with the IMF and it’s in a very difficult condition right now, and the commodities that Argentina produces are not in high value and Argentina is in dire straits. So, in the short term, this is very negative, but in the long-term, it’s not going to be sustainable. This is just going to weather the difficulties of today.”

“It is left-leaning,” Perez acknowledges, “and, at the end of the day, it’s probably not one that I would select in a menu of options, but very clearly it’s created by the situation in Argentina, and don’t underestimate the pandemic because we are at the peak.”

President Alberto Fernandez beat incumbent Mauricio Macri in general elections last year and took power on Dec. 10.

His government also released a budget this week that aims at a fiscal deficit of 4.5% of GDP in 2021.


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