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Argentina to relax foreign exchange controls Argentina to relax foreign exchange controls
(about 7 hours later)
Argentina has announced a relaxation of currency controls, the government has said, which experts say is likely to weaken the peso. Argentina has announced it will lift its currency controls which were imposed four years ago to prop up the peso.
President Mauricio Macri hopes the move will boost exports and spark economic growth. The move is expected to lead to a sharp devaluation of the peso.
Farmers in the country have been waiting for the currency to fall before selling stockpiles of soybeans. President Mauricio Macri hopes it will boost exports and spark economic growth.
The official exchange rate of 10 pesos to the dollar is not matched by a much stronger black market rate. But consumers fear it could further drive up Argentina's already high inflation rate,
Analysts expect the official rate to weaken to between 13.5 and 15.00 per dollar, in line with the black market rate. Argentina has been plagued by financial volatility in recent decades with inflation running at around 25% according to private estimates.
The Argentine finance minister, Alfonso Prat-Gay, said he accepted the rate would weaken to "close to" 14.2 to the dollar. Some retailers also expressed concern that shoppers would be cautious in the short term as they see their purchasing power reduced.
Mr Prat-Gay also said the country was negotiating a credit line with international banks to build a credit line of more than $5bn to replenish the country's international reserves. The country's previous leader, Cristina Fernandez de Kirchner, used central bank reserves to prop up the peso.
In a press conference, Mr Prat-Gay said "The old system had killed the goose that laid the golden egg" by restricting the growth of the economy. But Mr Macri, who was elected last month and inaugurated on Thursday, had vowed to change the policy.
He outlined that exchange controls would end for all businesses who would be allowed to buy as many dollars as they needed. Market watch
But he said, for the time being, ordinary Argentines would still face restrictions on the amount of dollars they could buy a month. The peso will be allowed to float when markets open on Thursday.
In response to concerns that there could be a steep devaluation, Mr Prat-Gay said the central bank had been given the right to intervene if the exchange rate fell to quickly. Analysts predict a fall of up to 30% from the current controlled rate of 9.8 pesos to the dollar.
They say they expect it could fall to 14.5 pesos to the dollar, the rate at which the currency has been trading on the black market,
Analysis: BBC's Ignacio de los Reyes in Buenos AiresAnalysis: BBC's Ignacio de los Reyes in Buenos Aires
The Argentine economy is so dependent on US dollars that grandmothers give their grandchildren 10-dollar bills as birthday presents and adults hoard them under the mattresses. So that is why in dollar-addicted Argentina, the end of the "cepo" or exchange controls was anxiously expected.The Argentine economy is so dependent on US dollars that grandmothers give their grandchildren 10-dollar bills as birthday presents and adults hoard them under the mattresses. So that is why in dollar-addicted Argentina, the end of the "cepo" or exchange controls was anxiously expected.
The government of Cristina Fernandez de Kirchner tried to end the buying of dollars four years ago, but prohibition simply fuelled the black economy.The government of Cristina Fernandez de Kirchner tried to end the buying of dollars four years ago, but prohibition simply fuelled the black economy.
Since then, a legion of informal street sellers in Buenos Aires' main thoroughfare, Paseo Florida offer foreign currency at much higher rates than the official one which is extremely hard to buy legally. Since then, a legion of informal street sellers in Buenos Aires' main thoroughfare, Paseo Florida, offer foreign currency at much higher rates than the official one which is extremely hard to buy legally.
Argentines also found other creative ways to circumvent restrictions, from organised day-trips to neighbouring Uruguay to get US dollars from cash machines to Bitcoin trading.Argentines also found other creative ways to circumvent restrictions, from organised day-trips to neighbouring Uruguay to get US dollars from cash machines to Bitcoin trading.
The new policy may satisfy middle and upper class Argentines who will now be able to get their dollars freely. The new policy may satisfy middle and upper-class Argentines who will now be able to get their dollars freely.
But they are also fearful of the consequences: higher prices and a potential devaluation of their currency.But they are also fearful of the consequences: higher prices and a potential devaluation of their currency.
The country's previous leader, Cristina Fernandez, used central bank reserves to prop up the peso. Argentine Finance Minister Alfonso Prat-Gay said he accepted the rate would weaken to "close to" 14.2 to the dollar.
But Mr Macri, who was elected last month and inaugurated on Thursday, had vowed to change the policy. He said the central bank had been given the right to intervene if the exchange rate fell too quickly.
Argentina has been plagued by financial volatility in recent decades with inflation running at around 25% according to private estimates. But he was adamant that change was needed: "The old system had killed the goose that laid the golden egg" by restricting the growth of the economy.
He outlined that exchange controls would end for all businesses who would be allowed to buy as many dollars as they needed.
But he said, for the time being, ordinary Argentines would still face restrictions on the amount of dollars they could buy a month.