Market Update: Argentina’s Capital Controls, VP Gets Six Years for Fraud

In the last decade, Argentina has been one of Latin America’s more volatile markets. Under the administration of former President Cristina Fernández de Kirchner who served from 2007 to 2015 (now current Vice President), the country suffered restrictions on foreign exchange and imports, which drove many multinational companies out of the country. 

A number of policies have failed to ease Argentina’s concerns about a substantial currency devaluation since the government controls the official exchange rate with a diminishing amount of cash reserves.

Today, these restrictions are still in place and Argentina suffers from incredibly high inflation levels. 

According to an analyst survey published by the Central Bank of Argentina (BCRA) in October, the country’s annual inflation could reach 100.3% by year-end, jumping 5.3% from its previous estimate.

The prediction marks the first time private economists have placed Argentina’s potential inflation above the triple-digit number. This is a level not seen in the country since the early 1990s when hyperinflation damaged its economy.

As of October 2022, Argentina’s inflation rate stands at 88%.

Argentina’s annual inflation rate in the last 10 years. (Source: tradingeconomics.com).

For this reason, the demand to take dollars out of the country has increased further and resulted in the Blue Chip Swap (BCS) spread near an all-time high. With current levels of inflation and devaluation, we believe the spread between the official rate and the ‘blue dollar’ will increase in the near term.

The spread between the Official Rate and the Blue Chip Swap Rate as of December 5, 2022.

On Tuesday, Argentine Vice-President Kirchner was convicted and sentenced to six years in prison and a lifetime ban from holding a public position.

A three-judge panel found the Peronist leader guilty of a fraud scheme that embezzled USD$1 billion through public works projects during her presidency.

This marks the first time an Argentine vice president has been convicted of a crime while in an official position.

Kirchner has denied all accusations, which place her of improperly granting the projects to a construction magnate closely linked to her family.

Supporters of Kirchner gather outside Congress after the verdict and sentence in Buenos Aires. (Source: Federico López Claro / clarin.com).

Her supporters vowed to paralyze the country with a nationwide strike.

As many of our clients can testify, Argentina is a country of extreme uncertainty, and it has never been more important to work with an advisory team with years of experience in this space and an understanding of what's happening on the ground in Argentina. 

We continuously monitor the economic situation in the country, and we have come up with creative solutions around these new restrictions that your company might like to evaluate.  

If you would like to talk about these alternatives or have any questions about today’s Market Update, you can call us at 604-643-0101 or email cashgroup@cgf.com.