Argentina’s pro-business president flip-flops and imposes capital controls

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BUENOS AIRES—When President Mauricio Macri took office in 2015, he quickly eliminated the interventionist policies of his leftist predecessor that economists had blamed for stifling business in Latin America’s third-largest economy.

Today, Mr Macri reversed course, implementing policies similar to those he once raged against as he weathered financial market turmoil triggered by a crisis of confidence in recent months. his embattled administration.

On Monday, the government introduced capital controls, in an unexpected move that comes more than three years after Mr Macri lifted similar restrictions. His administration has already frozen the prices of gasoline and some basic foodstuffs to help Argentines suffering from economic stagnation and annual inflation of around 55%, one of the highest rates in the world.

“It’s a disaster for Macri,” said Bruno Binetti, a political analyst in Buenos Aires. “For him to reinstate restrictions after lifting them in the early days of his administration, I would say is a humiliation.”

The Argentine peso strengthened on Monday to close at 57.99 to the dollar from 59.51 in the previous session on Friday, according to Tullett Prebon. The benchmark Merval stock index closed up 6.45%.

Capital controls force the central bank to limit sales of dollars, forcing businesses and banks to obtain permission to buy hard currency. The country’s exporters must now repatriate all hard currency from overseas sales. People looking to buy dollars will have a limit of $10,000 per month. Foreign bank transfers by individuals will also face a monthly limit of $10,000. Dollar purchases by non-residents will be limited to $1,000 per month and they will not be allowed to make overseas bank transfers.

Finance Minister Hernán Lacunza said the government was not happy to implement “unpleasant measures” which it had quickly abandoned in hopes of building a modern, competitive economy open to global trade.

“Argentina seems to be in a circle where we return to the same port from time to time,” Lacunza said in a television interview on Sunday evening. “This is not the port where we imagined we would be right now.”

Lacunza, who was appointed finance minister two weeks ago following the latest bout of volatility, said Argentina was not facing a run on the currency. But he defended the controls as a necessary precaution to prevent an out-of-control depreciation of the Argentine peso that would wreak havoc in a nation that has swung from one economic crisis to another.

“These are not measures for a normal country,” Lacunza said. “These are uncomfortable but necessary measures to avoid greater damage.”

The International Monetary Fund, which last year approved a $57 billion bailout package for Argentina, said it was analyzing details of the measures and would be in close contact with Argentine authorities. “The fund will continue to support Argentina in these difficult times,” a spokesperson said.

Capital Economics, a London-based consultancy, said the measures were “another worrying sign that history is repeating itself”.

In the short term, Mr Macri’s measure could help stem capital flight and slow the depletion of reserves, said Capital Economics, a London-based consultancy. But in the long term, Capital Economics said the controls would undermine business activity and fuel a demand for dollars on the black market.

The central bank increased the sale of dollars in a bid to reduce the sharp depreciation of the peso after Mr Macri was defeated in a primary vote on August 11. Economists say foreign exchange reserves have fallen by $12.2 billion since August 9, or about 20% of the total.

Monday’s capital controls were announced after the government unilaterally extended the maturity of all short-term paper last week after it was unable to roll over its bonds due to falling demand for government debt. .

The latest turmoil has been sparked by investor concerns over the return to power of the nationalist Peronist movement which is expected to abandon the austerity policies Mr Macri began implementing in 2015 after taking power. Alberto Fernández, the Peronist candidate, is the big favorite to win the October 27 elections.

While political analysts say Fernández is a pragmatic moderate, many Argentines believe his running mate, fiery leftist former president Cristina Kirchner, will play an important role in the next government. In an interview with The Wall Street Journal last week, Fernández said his government would raise government wages and pensions and try to contain inflation through a far-reaching pact with employers.

“To reverse this cycle, you have to launch a consumer stimulus package,” he said in the interview, in which he partly blamed the IMF bailout for the market crash.

Ms. Kirchner, a deeply polarizing figure who faces several corruption trials, has kept a low profile during the campaign since she surprised Argentines in May by announcing that Mr. Fernández would lead the Peronist ticket, in her place. When she appears in public, Ms. Kirchner attracts large crowds of cheering supporters.

During a presentation of her new book in the city of La Plata on Saturday, Ms Kirchner said she did not want to be vice president, but was doing it to unify the Peronists, who have fractured in recent years. years. And she blamed Mr Macri for the financial crisis, saying he was beholden to business interests.

“These neoliberal recipes…never again,” Ms. Kirchner said. “Let’s seriously try to have a project for the country that is sustainable and viable.”

Write to Ryan Dube at ryan.dube@dowjones.com

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