Argentine reserves drip out even as government tightens controls

By Walter Bianchi

BUENOS AIRES (Reuters) - Argentina's foreign currency reserves are falling fast despite the government's tightening of access to dollars, hitting the lowest level since early 2017 in May as the country struggles to control the coronavirus and a long-simmering debt crisis.

Central bank reserves fell almost $1 billion last month as the entity looked to prop up Argentina's peso, and have tumbled around $3 billion since early January. They now stand at $42.6 billion, down from a peak near $80 billion early last year.

The low levels have raised a red flag as Argentina looks to hike emergency spending to fight the COVID-19 pandemic, dig out of a biting recession and appease foreign creditors pushing for a bigger payout in a $65 billion debt restructuring.

The central bank has sought to restrict companies' access to dollars in recent weeks. Private citizens can only buy $200 in foreign currency on the official exchange market per month, and must pay a steep tax.

"Despite the restrictions on buying foreign currency ... growing uncertainty has unleashed a new round of falling reserves," local consultancy Ecolatina said, adding the "alarming levels" could prompt more tightening.

The South American country imposed tough capital controls last year after a market crash led to a dramatic pick-up in foreign currency demand, as the central bank looked to prop up a weakened peso and savers shifted to safe-haven dollars.

Argentine officials say they want to relax controls once the economy has been stabilized and a debt deal reached. But fears remain about a damaging run on the peso in a country that has struggled to build confidence in its currency for years.

The central bank's current international reserves amount to less than the total value of Argentina's imports last year.

Central bank interventions have helped keep the peso mostly stable recently, but its value on unofficial markets has plummeted, creating a worrying gap with the official rate.

The government is inching closer to a vital debt restructuring, but still faces tough hurdles to reach a comprehensive deal with creditors.

"While the negotiations last, we expect strong control over foreign exchange operations will remain in place given the backdrop of falling reserves and high demand for dollars," said Argentine financial advisory Portfolio Personal Inversiones.

(Reporting by Walter Bianchi; Writing by Adam Jourdan; Editing by Tom Brown)

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