After default, Argentina economy falling into deeper hole

Thu Sep 11, 2014 12:11pm EDT
 
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By Sarah Marsh

BUENOS AIRES (Reuters) - Argentina's government is ramping up state intervention in the economy to try to prevent a new debt default from triggering a balance of payments crisis but its policies are also battering business confidence and may deepen a recession.

In the six weeks since Argentina failed to complete a debt coupon payment and defaulted for the second time in 12 years, the government has restricted the amount of dollars available to importers, boosted subsidies and drawn up proposals to interfere in private companies' output plans.

"They're clamping down on foreign goods," said 42-year-old camping store salesman Javier Aguirre, gesturing at a single sleeping bag hung on a rack meant to display a dozen. "We are having to place things carefully at the front of the shelves to make it seem we're well stocked."

Along the Santa Fe shopping boulevard in Buenos Aires, the choke on imports and a sharp decline in consumer spending have driven up shop closures and forced retailers to bring forward sales.

The leftist government's measures are meant to shore up foreign reserves that stand at less than five months worth of imports and boost consumer confidence to prevent the $490 billion economy already contracting.

But with no signs of a deal to emerge from default and thus no prospect of a return to global debt markets, capital flight has intensified, pushing the peso currency to record lows and fuelling inflation.

One company manager who imports agricultural machinery, including water pumps and generators, describes the government's policies as "lethal" even before the default, and says they are now even worse.

He said the import curbs mean he been able to import goods worth just $2,795 in the first six months of the year compared with an average $25 million in previous years.   Continued...

 
A man walks past a poster with pictures of Argentina's President Cristina Fernandez de Kirchner and U.S. District Court for the Southern District of New York Judge Thomas Griesa, depicted as Uncle Sam, near the Argentine Congress in Buenos Aires, September 10, 2014.   REUTERS/Marcos Brindicci