Argentine Capital Controls Still in Place

As you are probably aware, Argentine currency controls are still presenting obstacles for businesses who need to send money into or out of the country. Global market volatility is making this need more urgent for most investors, who need to act decisively in these uncertain times. 

Our team is a leader in providing cross-border treasury services to businesses with operations in Argentina.

The Blue Chip Swap is an efficient, cost-effective way to fund your business in Argentina, and among the only viable methods of repatriating funds, paying dividends, or meeting foreign debt obligations. We have seen the Blue Chip Swap rate exceed the official exchange rate by as much as 42%, and currently is around 37%, depending on which security is used.

Blue Chip Swap Rate, 2019-Present

Source: Bloomberg, March 10th

Argentine Bond Risk

An important consideration for those making use of the Blue Chip Swap process is the volatility of Argentine Bonds. While sovereign debt is generally considered to be very low risk, Argentina's bonds are the subject of an ongoing negotiation with bondholders and the International Monetary Fund. Any news on the progress of those negotiations, credible or not, can move the value of Argentine bonds significantly. From what we've seen, Argentine bonds are more volatile than either domestic or foreign equities, and we encourage clients to consider this volatility.

Bonds are also commonly used by those conducting a simultaneous or "closed' trade. While we understand the appeal of Blue Chip Swap transaction that eliminates market risk, we stress that a simultaneous Blue Chip Swap trade involves the highest reputational risk.

It's imperative to evaluate both reputational and market risk when considering your options for cross-border currency controls.

Disclaimer: Canaccord Genuity Corp. is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and Canadian Investor Protection Fund (CIPF). The comments and opinions expressed in this commentary are solely the work of the Cash Management Group and Andrew Johns.