Argentina economy minister backtracks on details in relaxing some currency controls

BUENOS AIRES, Argentina – Argentina’s economy minister is backtracking on details of the government’s recent announcements over the easing of currency controls.

Argentina announced Friday it was relaxing restrictions on the purchase of U.S. dollars. The decision was forced by double-digit inflation and the sharpest slide in the local peso’s value since its 2002 economic collapse, causing fears among many Argentines that it could happen again.

Economy Minister Axel Kicillof told local daily Pagina 12 in an interview published Sunday that the Argentine tax rate on credit card purchases made in dollars will not be lowered Monday from the current 35 per cent to 20 per cent, as he had announced.

“In the case of currency for tourism and for purchases with a credit card abroad, the 35 to 20 per cent move will not be implemented this Monday,” Kicillof said. There was no word of when, or if, the tax rate on credit card purchases may be eased.

The tax for credit card purchases in dollars was issued by the centre-left government late last year ahead of the southern hemisphere vacation season as one of several controls aimed at slowing the flood of greenbacks out of the country.

“Internal tourism improved a lot in Argentina and those who wanted to travel were able to,” Kicillof said. “People with a high purchasing power were able to spend in dollars without limits using their credit card.”

The tax will still be lowered for cash purchases, however. And all the other announced measures are still to take effect Monday, most notably a provision allowing Argentines to again buy pesos for personal savings, reversing a 2012 restriction.

Argentina has been kept from global credit markets since defaulting on its debt during the2001-2002 economic crisis, so the government heavily relies on its foreign exchange reserves to meet debt obligations and finance infrastructure projects.

The reserves recently plunged to their lowest level in seven years, forcing the government to ease the currency controls. The restrictions that began in 2011 seemed only to backfire by pushing many Argentines to the black market in search for dollars, and in turn, stoking the second-highest inflation rate in Latin America after Venezuela.

After Friday’s announcement, the black market dollar weakened to 11.8 from 13 pesos, while the official rate held roughly stable at an average 8 pesos to the dollar.

Argentines are haunted by memories of the country’s worst crisis, when banks froze deposits and the currency lost value, so they have been eager to obtain dollars as protection from high inflation.