Argentina imposes new forex controls

New exchange controls slapped on the peso by Argentina's central bank have failed to stem a slide in the currency's value to record lows.

Startled by the accelerating slump, the bank threw its reserves at the peso.

But with nearly one tenth of the reserves - totalling $1.2bn - spent to little avail, the Central Bank has now banned foreign exchange traders and banks from buying dollars from it at the market rate.

The new controls also limit the sale of dollars to $1,000 for each individual or $10,000 per company, while bureaux de change have had their opening hours slashed by half to just 3-1/2 hours a day.

No end in sight

Still, so far there has been little effect.

Before devaluation in January, the peso was pegged at parity with the US dollar.

The decision to let it float saw a starting rate of 1.40 pesos to the greenback.

By 1800 GMT, a single dollar was buying 3.75 pesos - a fall of 75%.

"In the absence of having some credible fiscal policy and economic management, spending reserves was just throwing money away," IDEAglobal head of Latin American research Doug Smith told the Reuters news agency.

Old fears

The sharp fall is raising fears that inflation could shoot up, since the shifting currency means the price of any goods sourced from outside Argentina is shooting up.

Argentines, half of whom are below the poverty line amid unemployment above 20%, fear that the moves could be the harbinger of a return to the bad old days.

The dollar-peso peg was introduced in the early 1990s to stem rampant inflation and turn around an economy hampered by deep-seated corruption.

But the country's heavy debt burden - brought on by years of excessive government spending - combined with a four-year recession and ill-timed austerity measures demanded by lenders to force the country into decline, default and finally devaluation.

Now the government - the fifth since early December - of President Eduardo Duhalde is struggling to keep the country going, desperate for new loans from a very reluctant International Monetary Fund.

Aldo Avram, director of economic consultancy Exante, told the BBC's World Business Report he believes Argentina should consider dollarisation although there would be political problems, he said.

It must be an ordered dollarisation, he added.

"Hyperinflation is a way in which you go to a dollarisation but in a disordered and chaotic way."