Argentine Stock Market Plummets Almost 12 Percent While Dollar Controls Hit Home

RIO DE JANEIRO, BRAZIL – With the return of the Americans from their Labor Day holiday, the Argentine stock market again fell on Tuesday, September 3rd. The Merval index retreated 11.90 percent and dropped to its worst level in two years.

On Monday, September 2nd, the index climbed 6.45 percent in a mostly domestic trend, as Wall Street was closed due to the US holiday.

The peso, on the other hand, continues to rebound against the dollar, after Mauricio Macri’s government imposed severe restrictions on trading with the US currency.

After retreating 5.85 percent on Monday, September 2nd, the US currency fell one percent against the Argentine peso and dropped to 55.35 pesos per dollar, its lowest level in a week.

According to traders, the decline was driven by the spot sale of dollars by the Argentine central bank.

On Sunday, September 1st, the government announced measures to restrict US dollar access to individuals, with a ceiling of US$10,000 per month, and determined that access to dollars, metals, and transfers abroad could only be effected with prior authorization from the central bank.

The government’s greatest fear was that people would pull out pesos and buy dollars in a massive strategy for seeking protection. This could unleash additional pressure on prices and push the country into hyperinflation. With prices rising by 54 percent a year, the word has returned to economic debates.

However, Macri’s action to impose exchange controls – which he abolished when he took office in 2015, in line with his free-market advocacy – could undermine the country’s “emerging market” status, according to the MSCI (Emerging Market Index).

The body providing the stock index reported on Monday that the change to restrict the circulation of capital could cause “material deterioration in the accessibility to the stock market” and lead to the “reclassification of Argentina’s MSCI index to standalone status – not to be included in emerging market indexes nor in those of frontier markets”.

Any reclassification of Argentina in the indexes, widely monitored by the market, would first require a public consultation with MSCI.