BUENOS AIRES (Dow Jones)--Argentina's financial bourse is looking to capitalize on government attempts to restore access to international capital markets with a proposal to ease capital controls to bring back foreign investment.The Bolsa de Comercio de Buenos Aires on Monday handed the government a proposal to revise the country's capital controls, said Adelmo Gabbi, the bourse's president, in an interview with Dow Jones Newswires.
"This would be a first step to, in a short amount of time, move toward complete freedom" from all capital controls, Gabbi said.
Argentina could attract some $10 billion in foreign capital if the proposed changes are implemented, as they would help restore the country's status as an emerging market, Gabbi said.
Argentina was demoted to "frontier" status by index provider MSCI Barra in May 2009 because of a requirement that foreign investors deposit 30% of any money they bring into the country with the central bank for one year.
If Argentina were to move back into the emerging markets category, international investors who have about $120 billion invested in emerging markets stocks would have to rebuild their positions in Argentine companies.
Rather than the deposit, the Bolsa wants the government to oblige foreigners to keep their money in the country for a fixed amount of time, Gabbi said. Investors who take their money out before that time elapsed would have to pay a tax.
The exchange is also proposing that this only be applied to the shares of companies that trade only in Argentina, the official added. Companies with shares listed on exchanges in other countries would still be subject to the 30% deposit.
Gabbi met with President Cristina Fernandez and her economic team two weeks ago, but said he hasn't gotten any word on whether the government would accept the exchange's proposal. A spokesman for the Economy Ministry wasn't able to comment for this article.
"Today we are presenting to the government a proposal which we understand will offer a solution," Gabbi told Dow Jones. "Argentina doesn't deserve to be outside the financial world."
The government's recent offer to exchange defaulted bonds demonstrates that the country has turned a corner since the default of 2001, Gabbi said. Back then, Argentines argued over whether or not the country should stop paying its debts. Now, the only debate is about how to pay those debts, he added.
Investors' fears about a country are often reflected in the risk premium which they demand for holding the country's financial assets, and Argentina's risk premium is among the highest in the region.
That premium is justified "because at some point, some Argentines celebrated the default," Gabbi said. "Today all Argentines of all political stripes want to meet their commitments."
That helps the Bolsa's attempts at reinvigorating the local stock market as a source of capital, as its position within the broader market has collapsed since an economic crisis of 2001.
The debt default and currency devaluation that ensued scared away many investors, and more recently, the government's takeover in 2008 of the private-sector pension funds removed the largest players.
Instead of having a number of pension funds holding a company's free float, a large chunk of the shares are held by one investor, the state-owned pension system Anses, which is less active in the market, Gabbi said.
Stock trading this year has averaged around ARS44 million a day, or about 7% of ARS623 million in total trading. In 2000, average trading was ARS172 million, of which ARS39 million, or about 23%, involved equities.
As the stock market has dried up, the bourse has come up with other mechanisms to help provide finance, demonstrating that there is capital available.
Fiduciary trusts have emerged as an important source of financing for consumer loans, while small and midsize companies have the ability to trade post-dated checks through the exchange, he said. These are unusual tools that emerged in response to the lack of bank lending, Gabbi said.
Nevertheless, there is space for new companies to come to the market, and three or four are in the process of filing the documents to launch initial public offerings.
Gabbi, who is also president of the Iberoamerican Federation of Bourses, said regional integration of stock exchanges is "very likely."
Chile, Colombia and Peru are currently working on a project to allow cross-border trading on their exchanges and, if successful, could be the basis for more countries to join, according to the official.
-By Matthew Cowley, Dow Jones Newswires; +54 11 4103 6740; This e-mail address is being protected from spambots. You need JavaScript enabled to view it
Source: http://online.wsj.com/article/BT-CO-20100628-713064.html
