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October 24, 2014
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Citizens buy around US$6M per day

A man looks at a board at a foreign exchange bureau in downtown Buenos Aires.
By Francisco Aldaya
for the Herald

In first two months of operation, new dollars for savings scheme costs US$410.5M

Two months after Argentines first flocked to exchange their pesos for US dollars upon the government’s partial lifting of the dollar clamp that gave rise to the so-called “blue,” or black market, US$410.495 million have been dished out at the expense of Central Bank reserves, while the amount authorized for exchange each month has been on the rise.

More than 700,000 requests have been approved and made effective since January 27, with a further 208,025 validated for US$101.8 million. Of that total, 90.7 percent was immediately withdrawn in cash, which implies a 20 percent surcharge.

Straining long-dwindling reserves — which were yesterday confirmed to have shot downward another US$167 million breaking the psychologically important US$27-billion mark to end the day at US$26.939 billion on Thursday — to allow savings in dollars has served to reduce demand for the blue dollar, with its gap against the official greenback remaining steady since the sudden devaluation of the peso in January.

Since last Thursday reserves have increased again, with the Central Bank reporting a provisional figure of US$27.063 billion yesterday.

On the informal market, the dollar closed yesterday at 10.80 pesos, while the official rate traded at 8.01 pesos.

The opening of the official exchange rate market for dollars was immensely popular when it was first launched, with citizens receiving US$94.874 million at the official rate within four days.

In those first four days, they bought more than half of the dollars they purchased in February, when total purchases were for US$167.747 million, during which pesos were exchanged at an average rate of 7.88 per greenback.

That’s not to say approved requests have waned, however, with US$242.75 million made effective in March alone.

Although the sum of dollars validated by the AFIP tax agency was greater, fewer requests were filed than in the four days of January the measure was available, suggesting people may have simply been trying out the new system without any intention of actually making the purchases effective.

To receive authorization to purchase dollars, citizens must have earned above the minimum salary of 7,200 pesos per month established by the AFIP tax bureau for the last 12 months, with a maximum amount of dollars per individual set at 20 percent of his or her monthly earnings, as well as a limit of US$2,000 per month per person. Up to yesterday, 280,772 requests had been submitted in March, fewer than the 286,216 from January and the 357,147 in February.

With the INDEC national statistics bureau having recently confirmed that 75 percent of registered workers earn less than 6,500 pesos, approximately 2.3 million out of the country’s 11,574,000 workforce meet the requirements to apply.

The final hurdle implies that dollars withdrawn in cash are subjected to a technically refundable 20-percent surcharge, similar to that applied on credit card spending in foreign currencies. At yesterday’s rates, this implied a “savings” dollar at 9.61 pesos.

Those who leave their recently-acquired dollars in a local savings or fixed-term deposit accounts for 365 days will not be subject to the AFIP surcharge.

Effect on reserves

According to calculations by Abeceb, an economic consultancy, the cumulative wages of the people that meet the requirements to buy dollars amount to 14.5 billion pesos per month, without including the wage hikes that will inevitably come as a result of recent wage negotiations.

This translates into approximately US$360 million per month when taking into account that only 20 percent of monthly wages can be exchanged.

When extrapolated to a yearly figure, the maximum potential strain on reserves would be US$4.32 billion a year.

But when considering that 90 percent of people opt to withdraw their dollars in cash, the 20-percent surcharge thereby applicable brings down real demand to approximately US$3 billion.

On average the US$410.495 million exchanged to date brings about a rate of US$6.315 million per day and US$192.117 million per month, which throws an annual demand of US$2.305 billion for the year —and that’s without counting the initial surge in interest.

Reserves last week reached their lowest level since August 15, 2006, when the Central Bank posted US$26.838 billion, meaning they have depleted by 12 percent in the first three months of 2014.

The flexibilization of currency restrictions appeared to have eased the galloping pace at which they dropped last year, and has helped to diminish fluctuations in the parallel blue market.

@franma1990

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