Argentina's 'little trees' blossom as forex controls fuel black market

On the streets of Buenos Aires, money changers known as "arbolitos" or "little trees" are taking advantage of Argentina's capital controls to take a slice of a booming black market trade in US dollars.

One of the arbolitos, Martin, 47, spends his days shouting "cambio" to passersby, offering dollars outside the formal banking channels that currently limit purchases of the US currency to $200 per month.

The black market trade has flourished since Argentina introduced the controls in September to stem a decline in dollar reserves and stabilise the peso amid an economic downturn and debt crisis.

Argentina's boom-and-bust economy has suffered from high levels of inflation and a weakening peso for years, which has spurred savers to snap up dollars. But the increase in the black market trade risks fuelling inflation which is already running at more than 50%, while the peso has lost close to 70% of its value against the dollar over the last two years.

"This whole business is growing more and more," said Martin, who has been a arbolito for 10 months and pockets around 500 pesos ($8.35) a day. Like others traders Reuters spoke to he did not want to give his full name as the trade is technically illegal.

Argentina's currency is being held artificially stable by the capital controls, which were introduced following a market crash that pushed up the cost of the country's debt. The new Peronist government, which took over in December, is racing to restructure around $100 billion in debt payments to avoid a damaging sovereign default.

"The danger is that you get multiple dollar prices, or a parallel dollar," Ariel Coremberg, an economist at the University of Buenos Aires, said, referring to the black market trade. He said demand for dollars at higher rates risked fuelling inflation.

"This black market dollar can have a rapid knock-on effect on the price of all goods and services." Martin said the number of money changers had increased to meet demand that was around one-fifth higher than last year under the free-market government of conservative Mauricio Macri, who was defeated in the October election by center-left Alberto Fernandez. "It's better for us now. We earn 10% more than before," said Martin, adding clients were a mix of Argentines and tourists.

Under Macri's government, the official and black market price of dollars had been largely in step. But since the controls came in the two rates have diverged, with the black market rate now around 30% higher - a gap not seen since the end of the last Peronist government in 2015. A second often-cited rate, a legal workaround to access dollars known as a blue-chip swap, is even more expensive.

Macri had scrapped currency controls when he came to power in late 2015, but was forced to re-impose them in September last year after his shock defeat in a primary election caused currency market turmoil.

Copyright Reuters, 2020

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