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Argentina softens stance on price freezes, capital controls

Bnamericas
Argentina softens stance on price freezes, capital controls

Argentine authorities have softened their stance on utility prices and capital controls amid the crucial international debt restructuring negotiations.

Production minister Matías Kulfas said about the price controls that the government assured a delegation of the IMF - Argentina’s largest institutional lender and a crucial player in the debt negotiations - that the administration will unfreeze utility prices and change the price adjustment process, known as RTI.

“We laid out our vision. We explained that, in a moment of great turmoil, the idea is to create a mechanism to revise the price regime and then to update prices [accordingly],” Kulfas told reporters at the presidential palace.

The current suspension of the RTI, then, would be a temporary solution. Later, it would be replaced by a new regulatory scheme aimed at decreasing the costs of the electrical system to seek “reasonable and accessible prices,” according to the minister.

This would mark a departure from Peronist orthodoxy. Under presidents Néstor Kirchner and Cristina Fernández de Kirchner, natural gas and power prices remained frozen between 2003 and 2015. After that, previous president Mauricio Macri unfroze utility prices and created the RTI.

Nevertheless, a change to the price adjustment framework carries regulatory risk whose impact is hard to predict. The minister's comments suggest authorities seek to lower prices, which could influence companies' revenues when compared to RTI prices.

In a similar vein, the administration said it is proceeding with plans to render capital controls more flexible.

According to local press, the project is now being managed by finance minister Martín Guzmán, who oversees the debt negotiations with the IMF and Argentina’s private bondholders. President Alberto Fernández has been skeptical of capital controls in the past, saying they are akin to “putting a rock in a revolving door: nobody gets out, but nobody can come in, either.”

Yet, while originally conceived as a measure to incentivize oil industry growth, authorities are considering extending it to other industries, such as mining. 

The administration had previously reduced restrictions, allowing companies to take a sum equal to 30% of their investments in Argentina out of the country.

Both planned measures point to a more centrist policy outlook of the government compared to its more protectionist Peronist predecessors.

However, these initiatives will hinge on the country’s success in negotiating a solution for its debt, an issue that will have ripple effects throughout the economy, including the hydrocarbons and power industries, as BNamericas reported previously.

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