Capital Controls’ Captive Audience Qualms
Post-election Argentina reacting to massive capital flight slapped new regulations on household and corporate dollar purchases as next-door Brazil, which had championed inflow curbs, ordered relaxation of tax and other measures as it too experienced net portfolio investment withdrawal. Buenos Aires ordered that industrial companies repatriate export proceeds and that individuals verify foreign exchange need with tax agency approval, as Commerce Secretary Moreno vowed an informal market crackdown. The central bank must safeguard reserves to repay external debt next year while attempting to maintain a gradual depreciation policy to aid the agricultural trade surplus. Without the interference, the peso would be on track to fall one-third against the greenback by conservative estimates, which also expect GDP growth to descend to 1-2 percent without the same heavy pre-poll fiscal handouts. Energy subsidy rollbacks are already in the works, although President Fernandez insists that the longstanding economic model will continue to stress an anti-poverty agenda. She has remained sympathetic to Venezuelan President Chavez’s economic approach which has reiterated the fixed currency regime and extended a spending spree heading into another election round. Non-oil construction brought 4 percent Q3 GDP growth as consumer staple price controls were also stiffened. Another large sovereign-oil company bond, sending annual issuance to $18 billion, went to market to release hard currency as the centralized SITME platform continued to dribble out normal requests. The opposition may unite behind a youthful popular governor or mayor at a time when the incumbent’s opinion approval is low and his health is in question after a cancer bout.
Asian proponents of access and participation curbs including Indonesia, Korea and Thailand may also modify them under changed forex and debt market circumstances, authorities have hinted. In India the sudden steep rupee plunge prompted a well-established commercial and political lobby to advocate new restrictions, but the government responded instead with additional opening of the retail sector to overseas capital, as it attempted to belatedly honor re-election promises and reinvigorate inward securities and direct investment. In South Africa calls led by ANC activists were rejected as youth wing head Malema was placed on suspension ahead of next year’s key party conference. As with India, portfolio commitments are needed to balance the current account deficit, and local institutions are wary of retaliation as they seek to diversify in BRIC and Sub-Saharan destinations. In Europe Western bans on equity and CDS short-selling have yet to be embraced elsewhere, while Russia has just agreed to 50 percent international bank stakes under WTO provisions as another Putin presidency is slated with privatization and venture capital overtures to accommodating comrades abroad.
