Embattled Argentine President Mauricio Macri imposed restrictions on U.S. dollar (USD) purchases on Sunday September 1st, in an attempt to revive the Argentine Peso (ARS) and regain control over the country’s spiralling debt crisis. Argentines will now only be able to purchase $10,000 a month.
Argentina’s sovereign bonds suffered significant losses and hit record lows on Monday. The 2022 bond dropped $0.92 to $0.35.8 while the 2027 bond fell $0.075 cents to $0.33.218, according to Refinitiv data.
American depository receipts (ADRs) of the country’s financial institutions also suffered, with the largest domestically owned private bank Galicia Financial Group (GGAL) falling 9.15% in its Frankfurt listing.
Investor risk premiums for Argentina’s dollar bonds over U.S. Treasuries rose astronomically to 2,534 basis points on J.P.Morgan’s index of hard-currency emerging market bonds .JPMEGR, levels not seen since the major default of 2001.
No Argentine company will be allowed to accumulate U.S. dollars & Argentina’s exporters will also be required to transfer all of their foreign exchange earnings to the local market within five days.
This return to protectionist controls from the naturally free-trading Macri comes following; his defeat in a primary election to Peronist opponent Cristina Fernandez de Kirchner, a subsequent 30% fall in the value of the peso compared to the USD and a looming sovereign debt default.
Michael Bolliger, head of asset allocation for emerging markets at UBS Wealth Management observed that “there remains a lot of pressure on the currency… There’s a limit to what they can do without capital controls.”