EXCLUSIVE: Argentina to hold capital controls, seeks more foreign reserves

EXCLUSIVE: Argentina to hold capital controls, seeks more foreign reserves

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Argentina's ability to remove capital controls will depend on its ability to accumulate foreign reserves and not before, says the nation's economy minister.

In an exclusive podcast interview with LatinFinanceMartín Guzmán, acknowledged that the imposition of the controls is not something he wants to remain in place for much longer.

"We do not like the capital controls, but in order to modify them and avoid a worse evil, we need to build resilience through accumulation of foreign reserves. And that's what's happening now in the economy," Guzmán said.

Listen to the entire interview for Guzmán's take on the concluded debt negotiations, the economic outlook, state of capital controls and talks with the International Monetary Fund (IMF).

djbases · Martin Guzman - Economy Minister, Argentina - Jan. 27, 2021

Below are some highlights of the interview which took place as part of LatinFinance's Deals of the Year Awards program.

Last September, the central bank ordered all companies with principal payments of more than $1 million per month due before March 31, 2021 to extend the repayment for two years on at least 60% of what is owed. The measure is designed to protect the bank's gross reserves, which have tumbled nearly 50% over the past year and a half on a flight to dollars as concerns swell of a sharp depreciation of the peso against the US currency. A raft of companies have been forced to restructure their debts as a result of current policies.

Argentina, having concluded a sovereign debt restructuring in August with private sector creditors, is currently negotiating a new lending agreement with the International Monetary Fund for an Extended Fund Facility. That EFF would replace the failed $57 billion program from 2018, that was left over from the prior administration.

Guzmán maintains that the timeline for coming to an agreement with the IMF will occur in March or April.

"And in the plan with the IMF in the program with the IMF, there will be targets for an accumulation of foreign reserves, but there will also be a flexibility to recalibrate over time. We live in times of a pandemic and there is uncertainty about the evolution of aggregate demand at the global level. So we need to give flexibility to recalibrate it," he said

"This is something that is still under negotiation. So I cannot be more explicit. But certainly we have an idea on when it will be feasible to move towards a system of macro prudential regulations," Guzmán said.

In order to bolster foreign reserves, the government is focusing development on exports, specifically the agro-industrial sector, energy, mining and knowledge services.

Guzmán expects the economy will hit a 5.5% growth rate, which is above the latest IMF/World Bank regional GDP forecast for 4.1% in 2021. This tops Brazil's 3.6% and Mexico's 4.3% growth rate forecasts for this year. He said there could even be a slight surprise in the form of a less dismal performance in 2020. Economic contraction may come in closer to 10% for last year rather than the prior estimates for a shrinkage of 12.5%.