South America Calling

Argentina Ends Exchange Controls; Farmers Celebrate

Argentina will immediately end its foreign exchange controls, which have artificially propped up the peso for much of the last four years, Argentina Finance Minister Alfonso Prat-Gay announced late Wednesday afternoon.

Farmers will celebrate the measure, the expectation of which has already caused local prices to rise, and will likely prompt the selling of part of their massive soybean stocks.

Speaking at a press conference in Buenos Aires, Prat-Gay said the move was "fundamental for the economy to return on the path to growth."

The end of the controls will likely mean the peso devalues from its official rate of 9.76 to the dollar at the close Wednesday to near the black market rate of 14.77 to the dollar over the next couple of days.

If the 50% devaluation comes to pass, it will offer significant support to local grain prices and make Argentine farmers significantly more competitive.

It is the second piece of good news that Argentine farmers have received this week. On Monday, new Argentine President Mauricio Macri announced the end of export quotas and tariffs on corn, wheat and meat, correcting a distortion that had led farmers to abandon these products in droves.

Speaking on Wednesday, Prat-Gay said that, in response to the changes, farm exporters had agreed to ship in order to generate much-needed foreign currency revenues.

Argentine grain prices have been rising for the last six weeks in anticipation firstly that Macri would win the presidential election and secondly that he would do what he has done.

Corn has been the big mover on the local markets, rising over 50% in value since Oct. 23. Business has been brisk in the grain with, according to traders, approximately 1 million metric tons (mmt) of the remaining exportable total of 5 mmt sold over the last few weeks.

However, the soybean market has been slower. Different to corn, the soybean export tax has been reduced by just 5 percentage points to 30%, as Macri can't afford to give up this source of revenue.

Farmers have been waiting for details of the devaluation before selling their soybean stocks, which the Argentine Rural Society estimates at 15 mmt.

The question is how many farmers will continue to hold their crop until they are sure that Macri's economic plan can ensure stability and keep inflation under control.

Whatever happens, Macri's moves over the last week represent a sea change in the relationship between farmers and government. The sector was in constant conflict with Macri's predecessor, Cristina Fernandez, who saw the farm sector primarily as a ready source of income to be milked.

Fernandez instituted the currency controls in November 2011 to stop the bleeding of the country's foreign exchange reserves and help control inflation, allowing the currency to devalue slowly. However, the policy created huge distortions in the economy.

The minister said he expected the move to attract between $15 billion and $25 billion in grain export sales, new international credit lines and support from the Chinese central bank.

As of Thursday, individuals and companies will be free to buy up to $2 million in greenbacks per month, returning to the pre-controls level.

Alastair Stewart can be reached at alastair.stewart@dtn.com

Follow him on Twitter at @astewartbrazil

(AG)

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