People queue at the BBVA bank in Buenos Aires, Argentina, September 2 2019. Picture: RICARDO CEPPI/GETTY IMAGES
People queue at the BBVA bank in Buenos Aires, Argentina, September 2 2019. Picture: RICARDO CEPPI/GETTY IMAGES

Bengaluru — The Argentine peso strengthened on Monday as capital control measures imposed over the weekend kicked in amid a deepening financial crisis.

Argentina's government authorised currency controls on Sunday, an about-face by President Mauricio Macri, who had previously lifted many protectionist practices of his predecessor, Cristina Fernandez.

The central bank is now authorised to restrict purchases of dollars as it burns through reserves in an effort to prop up the peso, which initially fell nearly 5% in the opening hours of trading, but reversed course to rise 2.4%.

American depository receipts of Argentina's financial institutions came under pressure and international dollar and euro-denominated bonds fell to record lows.

The controls come after markets reacted sharply to "junk" and "restricted default" credit rating downgrades by Standard & Poor's and Fitch respectively, after the government announced its plans to "reprofile" about  $101bn of  debt.

"I think it all stems from a sense of fear that the potential debt restructuring may end up being messier than expected," said William Jackson, chief emerging markets economist at Capital Economics. "While in the very near-term, these controls may alleviate fears, but the long-term risk remains high."

The peso has been battered since Macri suffered a thumping defeat in primaries at the hands of Alberto Fernandez, on fears that the return of a leftist government could herald a new era of interventionist policies.

MSCI's index of Latin American stocks shed nearly half a percent with stocks in Chile leading losses. Sao Paulo shares were flat helped by a more than 1% rise in heavyweight Vale.

The real was only marginally lower compared with its Latin American peers. A private survey showed manufacturing sector in Brazil bounced back in August expanding at its fastest pace in five months.

Mexico's and Colombia's peso both fell 0.3% on the back of lower oil prices.

Reuters