BUENOS AIRES (Dow Jones)--Argentina Economy Minister Amado Boudou on Monday said the government doesn't have any plans to revise the country's capital controls.
Local press had reported on Monday that the government was planning to ease a requirement that foreign investors deposit at the central bank 30% of any funds they bring into the country, in a zero-interest account, for 12 months.
Asked by reporters whether there was any plan in the works to ease capital controls, the minister gave a determined "no."
The Bolsa de Comercio de Buenos Aires, or BCBA, has been desperate for removal of the capital controls, which were the main reason why Argentina was demoted to "frontier" status by index provider MSCI Barra in May 2009. The BCBA believes some $10 billion could be allocated back into the Argentine market if the country can recuperate its "emerging market" status.
Adelmo Gabbi, head of the BCBA, met recently with President Cristina Fernandez to discuss this issue, and then presented a formal proposal to the government which would remove the 30% deposit rule, but still require investors to leave their money in Argentina for at least one year.
Nevertheless, many analysts have been skeptical that the government would change the terms, as that would remove one of the tools used to manage the local exchange rate.
Some analysts had suggested that the government might make a change if it thought that the money brought in by foreign investment would offset some of the money being taken out by Argentines, a squeeze which is expected to be exacerbated in the second half of the year.
As the export proceeds from a record soy harvest were brought back home in recent weeks, the Argentine central bank has been buying up record amounts of dollars to prevent the Argentine peso from strengthening. Once the harvest revenue starts to diminish, however, the tide could swing in the opposite direction, and the central bank might have to start selling dollars to Argentines keen to take their money abroad.
If the government were to remove some of the capital controls, it would be "trying to flexibilize the inflow of capital into the informal market to try to ease some of the foreign-exchange market pressure in the second semester," said Joaquin Ledesma & Associados.
The revenue from agriculture currently helps mop up the $1 billion to $1.5 billion or so which Argentines are spiriting out of the country every month, as well as to cover payments for imports, which are sky-rocketing. Once export revenue dries up, however, the central bank would be stretched to cover the outflows.
That could threaten the central bank's management of the exchange rate as well as its ability to build up reserves to be able to make debt payments in 2011, Joaquin Ledesma & Asociados said.
Still, even if the government did make any changes, they wouldn't address the underlying problems which lead Argentines to take their money abroad in the first place.
"It doesn't attack the causes of the problems, which is basically the lack of confidence in the future and in the evolution of public policies," said Rodrigo Alvarez, of the Ecolatina consultancy.
-By Matthew Cowley, Dow Jones Newswires; +54 11 4103 6740;
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(Alberto Messer contributed to this article.)
Source: http://online.wsj.com/article/BT-CO-20100719-712344.html
