President's Currency Controls Producing Nervous Investors

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BUENOS AIRES -- Argentine President Cristina Fernandez has placed strict controls on the foreign-exchange market and forced oil, gas and mining companies to keep their export earnings in the country.

The moves are designed to shore up foreign-currency reserves and discourage citizens from sending their assets abroad. But they have set off alarm bells among her critics, prompting comparisons to the heavy-handed economic tactics of Venezuelan President Hugo Chavez.

Ms. Fernandez, a center-left leader known for lax fiscal and monetary policy, was re-elected last month in a landslide.

During her first term, she oversaw a booming export-based economy driven by high commodities prices. Her expansive social programs have won her political support among the working class and have been credited with creating jobs, boosting salaries and prompting the construction of homes and schools.

But with overseas holdings now as high as $160 billion - nearly half the size of Argentina's economy - a side effect has been the decline of the peso's value.

Until last week, the peso was depreciating at a 7 percent yearly pace, according to Boris Segura, a Latin American analyst for Nomura Securities. The peso today trades at 4.26 to the dollar; a year ago, it traded at 3.9 to the dollar.

The decline has prompted an uptick in the number of Argentines seeking to exchange pesos for dollars.

To discourage such demand, the Fernandez government on Oct. 30 began requiring people seeking to exchange pesos for any foreign currency to enter their national identification numbers into a database to show they aren't tax scofflaws.

The government also sent 4,400 tax agents to exchange houses across the country to implement the verification system.

Meanwhile, Ms. Fernandez is trying to keep foreign currencies in the local exchange market by requiring oil, gas and mining companies to cash in their export sales at home. The country's central bank estimates this will keep some $3 billion in U.S. dollars in the exchange market.

Bloomberg News reported Wednesday that, as Argentina has put limits on foreign exchange purchases, nervous investors are withdrawing their money in anticipation of further controls, and Argentine dollar deposits are heading toward their first annual decline in a decade. Dollar deposits have fallen by about $300 million since the Oct. 31 decree.

In the past, these sorts of moves have been preludes to quite severe changes to the rules of the game, such as freezes and devaluations, said Joseph S. Tulchin of Harvard University's Center for Latin American Studies during a phone call from Cordoba, Argentina. That's why this has been setting off alarm bells.

Ms. Fernandez won re-election with promises to deepen the model established in her first term. …