Argentina to lift currency controls, but cautiously

Argentina will ease currency controls under its new President Mauricio Macri, but not until the true amount of central bank reserves is known and its board of directors has been replaced, a senior incoming bank official told Reuters on Friday. Macri took office as Argentina's first non-Peronist leader in more than a decade on Thursday, promising to end the protectionist policies of outgoing leader Cristina Fernandez and to use the free market to revive an ailing economy.
Fernandez clamped down on access to US dollars in a bid to protect the central bank's precarious reserves. The bank counts its total reserves at $25 billion, but private economists say only $3 billion to $6 billion are in cash that could be disbursed if currency controls were lifted. "We need to know the truth. We know that liquid reserves are thin, and to lift restrictions on dollar access will be complicated," said the incoming official, who spoke anonymously.
"If the bank does not have a significant cushion of dollars, it will be difficult to completely free the foreign exchange market," he said. Macri inherits an economy plagued by double-digit inflation, a yawning fiscal deficit and a sovereign default that has made international bond financing impossible. He says he will name free-market economist Federico Sturzenegger as central bank president. Sturzenegger will be initially hemmed in by a nine-member board of directors, seven of whom were appointed by Fernandez over the last 15 months.
"We also have to wait for some of the board members to resign in order to work more freely," said the source, who is directly familiar with Sturzenegger's thinking. If the directors decline to step down, the government can take action to remove them, according to the bank's charter. The central bank has been spending reserves to prop up the peso currency. The current official peso rate of 9.75 to the dollar is 51.5 percent stronger than the black market rate. Most of the country's transactions take place between the official and black market rate. Macri has said he wants the two to gradually converge. Argentina's economy will be managed by Alfonso Prat-Gay, a Wall Street veteran who scheduled his first news conference as minister for later on Friday.