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Central Bank virtually eliminates financial
restrictions imposed last year
The severe financial system restrictions imposed on depositors on 3
December last year under Economy Ministery Domingo Cavallo via
government decree have finally come to an end. On 2 December, all
withdrawal restrictions on checking, savings and fixed term deposits
(the so-called corralito) were lifted. For the first time in a year,
account holders were able to freely dispose over funds deposited in
banks. According to the Central Bank, approximately 23.2 billion pesos
were freed up. In addition, limits on US$ or other foreign currency
purchases by cheque were eliminated, assuming that the total amount of
the purchase does not exceed US$ 100,000 per month without Central Bank
authorization. Furthermore, any purchase of goods or services that
exceeds 1,000 pesos must be paid by cheque or credit card and cannot be
paid in cash. The only exception of the return to financial liberty
concerns fixed-term deposits with a balance that exceeds 10,000 pesos.
The government still has to decide a policy and schedule on the freeing
up of the larger deposits (the so-called corralón). The total balance of
these funds accounts for some 16.7 billion pesos. The finance ministry
is suggesting that the limit should be raised to 20,000 pesos, an option
already rejected by the Central Bank and domestic financial
institutions, who are awaiting a Supreme Court ruling on a case that
could force the redenomination of peso deposits converted from US$ last
year.
Currency remains stable
The lifting of financial system restrictions did not materialize into a
mass withdrawal of deposits or a major currency run as some observers
had anticipated. In fact, on the day of the implementation of the new
measures, the peso appreciated 1.0% over the previous day. Moreover, the
peso remained firm through the end of the week of 6 December to close at
3.54 pesos to the US$. The December improvement came upon a trend of
steady appreciation in the currency in October and November. In October,
the peso had appreciated 6.0% and in November the currency had even
firmed above June levels. Participants have reflected the recent
currency strengthening in their year-end forecasts for 2002,
anticipating the peso to close at 3.77 to the US$ - 3.8% stronger than
expected last month. The year-end figure would bring this year’s annual
depreciation rate to 73.5%. Next year, the erosion of the peso value is
anticipated to slow notably compared to 2002, with the currency
depreciating 18.1% to close the year at 4.61 pesos to the US$.
Government hikes electricity and gas tariffs
moderately
On 3 December, the presidential decree to raise gas and electricity
tariffs entered into force. Given the social toll that the current
economic recession is having on Argentines in terms of unemployment and
loss of real income, the government has clearly incorporated social
considerations into its measures. The scheme developed by the Economy
Ministry provides for an average tariff hike of 7.2%, which is below the
moderate 10 to 12% figure mentioned by government officials earlier and
remains far below the 20 to 30% hike suggested by the International
Monetary Fund (IMF). The electricity hike does not apply to residential
users with low consumption (less than 300 kW/hour per two-month period),
which account for an estimated 42% of residential clients. Similarly,
gas tariff increases will not be applied to residential users that
consume less than 500 cubic metres per two-month period. This cross
section of residential users accounts for approximately 32% of
residential clients.
In the case of electricity, residential clients of the major electricity
companies, Edenor (Empresa Distribuidora y Comercializadora Norte),
Edesur (Empresa Distribuidora Sur Sociedad Anónima) and Edelap (Empresa
Distribuidora La Plata), whose consumption exceeds the exemption level
will face tariff adjustments between 9 and 11%. For commercial
establishments in the Capital Federal region and Gran Buenos Aires, the
adjustment to electricity tariffs will range between 12 and 14%, while
industry will encounter hikes of up to 16%.
In terms of gas services, residential users that exceed the exemption
threshold will face differing hikes according to region that range
between 5.6 to 7.4%. Industry and commercial establishments will be
expected absorb 10 to 16% tariff hikes.
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