Argentina's quest to keep dollars in the country is spawning illegal money trades inside offices and even schools. But big companies have fewer ways to skirt currency controls and must adapt to the country's offbeat, changeable rules. President Cristina Fernandez, a feisty populist, vowed to "fine-tune" economic policy after winning re-election in October. She has since limited imports, imposed capital controls and seized a majority stake in top energy company YPF.
Fernandez must curb capital flight in a country still wary of government intervention after the currency devaluation and bank deposit freezes of its 2001-2002 financial crisis. She needs dollars generated by a growing trade surplus to stay in Argentina to help fatten central bank reserves used to pay government debt. Officials are micromanaging money flows to carry out this mission, limiting dollar purchases and discouraging dividend payments and international wire transfers.
As the red tape piles up, businesses face delays and distortions that are hitting private investment. Analysts say the tightened state grip could backfire as an economic slowdown cools consumer and corporate spending. With limited access to dollars on the formal market, individuals and some small companies go in search of greenbacks on the black market, where costs are rising sharply.
Other companies buy bonds or shares they can sell abroad for dollars - which is legal but frowned upon by the government. "If you ask a foreigner what the business climate is like, they will say they work 50 percent of the time on their actual business and another 50 percent or more to comply with all these regulations," a legal advisor to companies said on condition of anonymity, reflecting a general unwillingness to speak publicly.
Argentines tend to save in the US currency and have long smuggled dollars out of the country to dodge taxes. To stop people spiriting hard currency from Argentina, the country's tax agency has dogs sniffing around for dollar stashes. A dog named Chalk found $110,000 hidden in a man's car as he tried to cross into Uruguay earlier this year.
The spread or gap between the formal dollar exchange rate and the parallel rate has quadrupled since Fernandez introduced new controls on the economy. Business leaders are under extra pressure to keep their cash in Latin America's No 3 economy, where growth is cooling fast and inflation tops 20 percent a year. They get phone calls from notorious government price czar Guillermo Moreno, who often decides when and why dollars change hands.
Argentines must have tax agency approval to buy foreign currency at the official exchange rate. A monthly limit is set on these purchases but sometimes operations are frozen for days, for reasons that go unexplained. That has been the case in the last week, triggering a 7.5 percent drop in the peso's value on the black market as demand for dollars rose. The tax agency warned on Tuesday it will crack down on people selling dollars at the parallel rate. Argentines are, however, adept at finding shortcuts. They see the latest controls as vexing but manageable.
"I've changed money at my children's school," an economist with foreign business contacts said. "You'll find these kinds of deals at every school in (wealthy areas like) Palermo, Recoleta, Belgrano and Martinez, and a black market inside every office." "The problem is for big companies because they can't use the black market," he added. "Smaller companies always have some black money to play around with and they will go to the parallel market, or use the bluechip swap rate, or whatever they have available."
The bluechip swap market reflects the implied exchange rate used to buy Argentine bonds or shares that can be sold overseas for dollars. Some companies get their money out of the country through these operations, which the government eyes closely. The bluechip swap rate has plunged to 5.81 pesos per dollar, versus the black-market rate of 5.49 per dollar. This represents a 31 percent and 23 percent premium, respectively, over the official interbank rate. Another strategy for sending foreign currency abroad is to buy Argentina's Boden 2012 bonds that mature in August, the proceedings of which can be deposited in overseas accounts.