MercoPress. South Atlantic News Agency

Argentine central bank confirms policy restricting access to foreign currency

Vanoli admitted it could be possible to eliminate restrictions in the short term but the aim is to find mechanisms to manage capital that are not so pro-cyclical”

Argentina will not end its controls restricting access to foreign currency in the near term, Central Bank President Alejandro Vanoli was quoted as saying in an interview published on Sunday in the government supported newspaper Pagina 12.

 Shut out of global credit markets since its record 2002 default on 100 billion dollars, Argentina introduced the restrictions three years ago in a move to prevent capital flight and protect its then-dwindling foreign reserves.

Asked if the bank might end the restrictions given a rise in reserves over the past few months, Vanoli ruled out any short term measures, saying it was important to strengthen the current stability in the currency markets.

“It would be technically possible to eliminate the restrictions in the short term but the aim is to find mechanisms to manage capital that are not so pro-cyclical,” he told Pagina12 newspaper.

Argentina's reserves stand at 31.3 billion, boosted from a 2014-low of 26.9 billion by currency swap loans from China.

Meanwhile the margin between the official exchange rate and black market rate has narrowed back to around 50 per cent from 70 per cent a few months ago, partly due to a crackdown on the unofficial market for greenbacks.

“We do not want to return to a situation where to raise reserves or compensate for a fall in reserves, we have to issue debt like in 1989 or carry out a mega devaluation like in 1991”, Vanoli said.

The central bank chief rejected criticism that soaring inflation was due to expansive monetary policy, saying the monetary base grew at a slower pace last year of 22%. This was lower than both the official inflation estimate of 23.9% and unofficial estimates closer to 40%.

“The monetarist theory does not represent the reality when you try to explain the cause of inflation,” said Vanoli, reiterating the government's position that inflation was being caused instead by speculation about a possible devaluation of the peso.

The central bank aimed to reduce inflation by reducing devaluation expectations while “stimulating activity through credits” to companies so they hike production, he said.

Vanoli also challenged critics and urged presidential hopefuls to explain how exactly they would eliminate foreign exchange restrictions. Argentina is holding presidential and congressional elections next October.

“Changes in monetary rules depend on the assessment made in each of the different situations, not only on the level of reserves,” Vanoli explained in the interview with Página/12. “The use of foreign currency is determined by the needs of Argentine economy: imports and investments in the first place, then the financial matters,” he added.

In a separate interview with Tiempo Argentino, Vanoli said he expected inflation in 2015 would be weaker than 2014. Inflation was stoked last year by a sharp devaluation in January, said Vanoli, who took office in October.

With regards to foreign reserves, Russia was also considering a currency swap loan with Argentina, he said.