Under the measures, which are expected to come into effect this week, foreign funds not linked to trade will 'be registered on their entry and their exit will be allowed only after 180 days,' economy minister Roberto Lavagna said. Withdrawals before that time will be taxed. This way the government hopes to prevent the inflows of speculative capital, mostly in the form of US dollars, which have contributed to a sharp rise in the value of the peso in recent months. The Argentine peso has strengthened 21% against the US dollar so far this year, having fallen almost 70% in 2002. At the same time, the amount of hot money entering the country has risen some 70% year-on-year, to over US$900m in the first six months of 2003.
The move to impose capital controls represents the first major economic play to have been made by newly elected President Néstor Kirchner, and it is in keeping with his avowed policy to increase the government's role in handling the economy.
The decision by the US Federal Reserve Bank to cut interest rates by 25 basis points meant that pressure on the peso was only going to increase, and with the central bank seemingly unable to control the rise in the currency's value, Kirchner evidently saw that responsibility to act lay with the government. A source in the economy ministry said the decision was 'inevitable due to the extremely high level of liquidity in the global financial markets.'
US Treasury Secretary John Snow expressed his disapproval at the measures, saying, 'In general we are pretty firmly of the view that capital controls are a mistake; they interfere with the market [and] discourage people from the willingness to make their capital available.' The IMF said that controls were sometimes appropriate.
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