The Argentine peso lost nearly a third of its value yesterday after the struggling South American country lifted foreign exchange controls.
In one of his first actions as president, Mauricio Macri allowed the peso to float freely, leading it to fall by as much as 30 per cent against the US dollar, from about 9.8 pesos to 13.89 pesos by lunchtime on the Buenos Aires market.
The devaluation was a campaign pledge of Mr Macri, who took office on Thursday of last week after winning the presidential election last month.
It is a key part of his reform package aimed at reviving the economy and encouraging foreign investment.
Foreign exchange controls were introduced by Mr Macri’s predecessor, Cristina Fernández de Kirchner, and have led to a thriving black market in American dollars, with Argentinians travelling to neighbouring countries to buy the greenback.
“Lifting currency controls means lifting the hurdles that have restrained the economy for years,” Alfonso Prat-Gay, the Argentine finance minister, said. “This is going to kick-start the economy and put it on the path to growth.” The country’s foreign currency reserves are at a nine-year low but, with the removal of restrictions on trading the peso, Mr Macri hopes to attract as much as $25 billion of foreign investment in the next month.
Though Argentinians will still be restricted in the amount of dollars they can buy every month, the reform removes any limit on businesses that were badly hit by the currency rules.
Business confidence was reflected in the Argentine stock market, which rose even as the peso collapsed. The Merval index of leading shares gained more than 100 points in early trading before falling back 24 points by midday to 12,060.13.
The new government also wants to resolve long-running and acrimonious negotiations with its creditors in the hope of regaining access to international borrowing markets.
Mr Macri said that he would meet with bondholders in an effort to reach a deal over the country’s 2001 debt default that has seen Argentina refuse to repay investors who owned its bonds at the time despite a US court judgment ordering the repayment.