Source Pravda.Ru

Argentine Government Wants People to Buy Dollars

After reaching its lowest value within the last seven months, the Central Bank of Argentina adopted a number of measures to push savers to buy Dollars in the free market. The reason: Argentina based the recovering of its economy on an artificially high valued dollar to promote commodity exports.

Now, after the economy started showing signs of stabilization, the Government is afraid of something unthinkable months ago: the slump of the Dollar. If the local currency starts gaining positions against the Dollar and Euro, the country would be less competitive. To avoid this probable scenario, the Central Bank, handled now by a former JP Morgan Senior Executive, lifted up restrictions to the exchange of foreign currencies and begun to allow wiring outside the country as a way to attract individuals and companies to the foreign exchange market.

Until last Monday, the Central Bank used to sell Dollars in the retail market, but since then ended such operations as its value exceeded free market marks. This is something the IMF has required since the end of March, when Argentina devaluated the Peso over 300%.

Analysts consider that this decision has two purposes. First, the Government wants to stabilize Dollar's value. The Minister of Economy, Roberto Lavagna, had anticipated his intention to keep it in $3.50. Besides, as per current legislation, exporters are obliged to sell Dollars they get from the international market to the Central Bank. As today, Argentine products are very competitive, they sell much more dollars than the other sectors of the economy can buy. The balance is purchased by the Central Bank, increasing the amount of international reserves. However, the State has to buy these Dollars with Pesos - local currency - increasing the flow of money circulating in the internal market.

As the Argentine economy is not as big as before, this may create a financial inflation as cash flow goes haywire while production is stopped. Therefore, if the economy starts investing in the foreign exchange market again, but not too much, this situation may stabilize while the expected industry reactivation arrives.

Even when these measures are not definitive and Central Bank Officers insist they are not subject to an agreement with the IMF, it is a good signal for Washington. In turn, the International Organism expressed, once more, its will to agree with Argentina.

It seems like a gradual normalization of the economy is being reached after one year of turmoil. However, as an old man who lived for a long time in this South American country might reply: "Tomorrow never knows". And he is right.

Hernan Etchaleco PRAVDA.Ru Argentina

Photo: Alfonso Prat Gay, President of the Central Bank of Argentina

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