Macri imposes currency controls as debt crisis deepens

argentina The government has imposed currency controls in a bid to stabilize financial markets as Latin America’s third-largest economy faces a deepening economic crisis.

The temporary measures, announced on Sunday, allow the government to restrict foreign currency purchases following a sharp drop in the super-sensitive peso.

All businesses must now apply to Argentina’s central bank for permission to sell pesos and buy foreign currencies to make transfers abroad.

In an official bulletin published on Sunday, the government said currency controls were necessary “to ensure the normal functioning of the economy“.

The latest move follows a surprise announcement on Wednesday that Argentina would seek to defer payments on around $100 billion in debt, which the rating agency S&P classified as default according to its own criteria.

The measures – which will remain in place until the end of the year – are a surprising turnaround for President Mauricio Macri.

Shortly after taking office in December 2015, the beleaguered leader of South America’s second-largest country abruptly scrapped tight capital controls that had been in place since 2011.

The Macri government and the central bank are attempt to restore confidence in the financial markets ahead of the October 27 presidential election.

Recession-hit Argentina is grappling with a financial crisis, which has been exacerbated by the president’s decision landslide defeat in a recent primary poll.

In a vote seen by many as a key predictor for the first round of Argentina’s presidential election in late October, pro-business Macri lost far more than expected to centre-left opposition ticket Alberto Fernandez and of the ex-populist. Chef Cristina Fernandez de Kirchner.

The peso fell to a record low last month after the main result cast serious doubts on the centre-right incumbent’s re-election chances.

Argentina’s currency, seen by some as a guide to the country’s economy, closed at around 59.49 to the US dollar on Friday. The peso has fallen more than 30% since the Aug. 11 primaries.

Market participants expected some form of capital controls from the Argentine government. However, some fear that this decision could compromise the International Monetary Fund (IMF) final installment of its historic $57 billion bailout package.

James Athey, chief investment officer at Aberdeen Standard Investments, told CNBC’s “Squawk Box Europe” that he still believes the IMF will provide another $5.4 billion tranche to Argentina later this month- this.

“Essentially, the IMF doesn’t want to be the one that pulled the plug.”

Athey argued that credit rating agencies had the same problem when it came to Argentina, with many “rushing” to downgrade the country to junk status in recent weeks.

“In reality the underlying health of the situation, I don’t think it has changed so dramatically. What has happened is that the prices of some of the external assets have changed and given the facade that things are dramatically worse… They’ve always been pretty bad.”

“So I don’t think the IMF wants to be the one to say, ‘No, you can’t have that last piece of money.’ But, $5 billion at this point is really throwing pennies in the wishing well,” Athey said.