IT HAD already been a startling week in Argentina, thanks to a 15% slump in the value of the peso on January 22nd and 23rd. But the biggest surprise came this morning, when the government announced that Argentine individuals will be permitted to buy dollars for saving purposes, a privilege in effect denied to them since 2011.



Having suffered many bouts of inflation and hyperinflation over the past decades, Argentines are conditioned not to hold their own currency. Instead they have converted their savings into greenbacks, often squirrelling dollar bills away under their mattresses and in their freezers. In late 2011, with the aim of defending the Central Bank’s dwindling international reserves, the government tacitly eliminated that option.

The government made no announcement and passed no law in 2011. President Cristina Fernández de Kirchner has denied the existence of any restrictions. But from then on, all Argentines who applied to buy dollars for saving purposes were rejected by the tax agency with nebulous excuses or no explanation at all. The only place to buy dollars was the black market, where the exchange rate sometimes exceeded the official one by as much as 70%.

As of Monday January 27th, the government will supposedly lift this invisible “clamp”. Today’s announcement by Jorge Capitanich, the cabinet chief, lasted only a minute and left his audience with more questions than answers. He revealed only that the exchange restrictions will be lifted for individuals, not for businesses; and that Argentines will still need to present tax affidavits along with their requests for dollars. Those making dollar purchases for travel will be charged a 20% tax advance on such purchases, down from 35% now.

One explanation for the events of the past week is that the authorities can no longer afford to prop up the peso by using Central Bank reserves. Although the 2011 dollar restrictions succeeded in stanching capital flight, they failed to stop the fall of Argentina’s international reserves. In 2011, when the clamp was implemented, the reserves were around $47 billion. They have since dropped below $30 billion. With an energy bill of $15 billion and debt obligations of $10 billion to pay this year, the Central Bank cannot endure much more pressure.

On the other hand, letting the peso plummet as Argentines rush to swap their money into dollars could quickly lead to panic. Even if the Central Bank stops intervening, AFIP, Argentina’s tax agency, will continue to control dollar sales, meaning Argentines could still face rejection of their exchange requests without explanation. Despite this morning’s announcement several black-market exchange houses in Buenos Aires, unsure of what the next week might bring, are still hungrily buying and selling at a rate of roughly 12 pesos to the dollar, well above the official rate of 8.1.

The bigger issue, according to Daniel Marx, an economist and former secretary of finance, is how the government plans to address inflation, which he estimates at around 27% and accelerating. “The announcement was very incomplete. No mention was made of a larger plan of fiscal and monetary changes,” says Mr Marx. Freeing up the currency is all very well but without a coordinated effort to rein in inflation, devaluation may just end up fuelling price rises and further falls in the peso. This week was dramatic; Monday is shaping up to be more interesting still.