When Mauricio Macri was elected president of Argentina in 2015, one of his first acts was to abolish capital controls that restricted buying and selling of the peso. The move symbolized Argentina’s pivot back to open markets and liberal economic reforms under his rule. On September 1st, after weeks of market turmoil, Mr Macri was forced to issue a decree re-imposing controls in an attempt to shore up the currency. From now on ordinary Argentines’ purchases of dollars will be capped at $10,000 a month. Companies will face restrictions on their ability to purchase dollars in the foreign-exchange market and to pay dividends to investors abroad.
Following days of market chaos in the wake of the vote (the August 11 primary vote that went to Peronist rival Alberto Fernandez (no relation to former president Cristina Fernandez de Kirchner)), Mr Macri’s government bowed to the inevitable last week and asked creditors for more time to pay back Argentina’s $101bn of foreign debt, including the IMF money, as Buenos Aires struggled to avoid the country’s ninth sovereign default — and the third this century. Currency controls were imposed on businesses on Sunday after it lost an estimated $3bn in reserves in just two days last week.
Thirty percent of all investment-grade securities now bear sub-zero yields, meaning that investors who acquire the debt and hold it to maturity are guaranteed to make a loss. Yet buyers are still piling in, seeking to benefit from further increases in bond prices and favorable cross-currency hedging rates—or at least to avoid greater losses elsewhere.