Restrictions on the purchase of dollars in Argentina revive the exchange gap

The exchange restrictions imposed by the Government of Argentina to try to curb each of the monetary reserves have revived alternative mechanisms to banks and exchange houses to get dollars, and with them, the so-called exchange "gaps" grow.

The phenomenon is not new. During the Government of Cristina Fernndez (2007-2015), the so-called exchange "stocks", which strongly limit the purchase of foreign exchange in the formal market, made the dollar price on the black market jump.

This difference in the value of the official dollar and the price in the informal circuit, which is known as the exchange gap, narrowed dramatically after Mauricio Macri, a few days after assuming the Argentine presidency at the end of 2015, decided to terminate the "stocks", which for years I had insulted.

The harsh reality of a recession that has taken almost a year and a half and that has deepened since the severe financial turmoil unleashed last August forced Macri to adopt new exchange restrictions.

He did so to put a stop to the sbita every in the monetary reserves – there were 13,799 million dollars only in August -, driven by the withdrawal of dollar deposits in the banks and by the sales of foreign currency by the Argentine Central Bank in the exchange place to try to contain the rise in the value of the US currency.

Controls limited dollar purchases and transfers abroad and are greater for companies, which can no longer buy foreign exchange for treasury.

As a consequence, many investors turned to the black market and the gap between the official dollar and the so-called "blue dollar" – as the price of the currency in the informal market is known in Argentina – widens.

Thus, while the state-owned Banco Nacin sells the dollar yesterday Friday to the public for 58.50 pesos per unit, in the so-called "caves" -local where currency is traded outside the controls of the Central Bank- is achieved, according to local media, to 62.50 pesos, which implies an additional cost of 6.83%.

"Before the controls this gap does not exist (or was less than 0.5% on average), while if we go back to 2011-2015 and after the imposition of the stocks, it was increasing between levels of 10-20% until finishing between 50-70%, "Matas Roig, director of the Portfolio Personal Inversiones firm, said in a report.

The "blue dlar" is not the only parallel exchange rate.

There are other ways to get dollars without going to the banks or exchange houses, mechanisms that were already in vogue during the Kirchnerist "stocks" and that now, with the macro controls, were refloated by the most sophisticated investors.

One of them is the so-called "counted with liquidation" (CCL) -or "counted with liqui", as it is called in the local financial jargon-, and consists of buying with Argentine pesos shares or bonds that are quoted both in Argentina and on Wall Street.

The title is bought in the local market, in pesos, and is sold in New York, in dollars, a maneuver that allows you to skip the exchange controls, especially to foreign investors who want to take their holdings out of Argentina.

The "dollar counted with liqui" is currently trading at around 68.77 pesos.

Another mechanism is to go to the "dollar bag" or "dollar MEP" (acronym for "electronic payment market").

It is a burst operation for which an asset is bought that is quoted in pesos and dollars at the same time, it is paid in pesos when purchased and sold in dollars, which are then transferred to the investor's bank account.

The "dollar bag" is quoted at 65.94 pesos, 16.35% more than the 56.67 pesos of the dollar in the official wholesale market to which large institutional operators have access.

In spite of the controls, which have managed to restrict the volume of operations in the formal currency exchange, the demand for dollars continues in the alternative markets, such as "blue", "liqui" or "MEP", an indication that Investors remain restless in the face of political and economic uncertainty in Argentina and seek to cover themselves by dollarizing their local savings or withdrawing their funds from the country.

"There is more demand for dollars to treasure on the part of human beings and the market in general demands to give a bag to treasure or counted on liqui to emigrate from the country," observed economist Salvador Di Stefano.

According to his analysis, given that "mistrust is climbing", the difference between the official exchange rate and alternative prices will increase in the face of the presidential elections of October 27.

"Whoever wins will have it very complicated, that's why people protect themselves in 'green' and whoever buys dollars, so the gap continues to increase," he said.