February 5, 2020 / 4:13 PM / 23 days ago

Argentina's 'little trees' blossom as forex controls fuel black market

BUENOS AIRES (Reuters) - On the streets of Buenos Aires, money changers known as “arbolitos” or “little trees” are taking advantage of Argentina’s capital controls to take a slice of a booming black market trade in U.S. dollars.

A man walks in front of a sign announcing money exchange, in downtown Buenos Aires, Argentina February 3, 2020. Picture taken February 3, 2020. REUTERS/Agustin Marcarian

One of the arbolitos, Martin, 47, spends his days shouting “cambio” to passersby, offering dollars outside the formal banking channels that currently limit purchases of the U.S. currency to $200 per month.

The black market trade has flourished since Argentina introduced the controls in September to stem a decline in dollar reserves and stabilise the peso amid an economic downturn and debt crisis.

Argentina’s boom-and-bust economy has suffered from high levels of inflation and a weakening peso for years, which has spurred savers to snap up dollars.

    But the increase in the black market trade risks fuelling inflation which is already running at more than 50%, while the peso has lost close to 70% of its value against the dollar over the last two years.

“This whole business is growing more and more,” said Martin, who has been a arbolito for 10 months and pockets around 500 pesos ($8.35) a day. Like others traders Reuters spoke to he did not want to give his full name as the trade is technically illegal.

Argentina’s currency is being held artificially stable by the capital controls, which were introduced following a market crash that pushed up the cost of the country’s debt.

The new Peronist government, which took over in December, is racing to restructure around $100 billion in debt payments to avoid a damaging sovereign default.

“The danger is that you get multiple dollar prices, or a parallel dollar,” Ariel Coremberg, an economist at the University of Buenos Aires, said, referring to the black market trade. He said demand for dollars at higher rates risked fuelling inflation.

“This black market dollar can have a rapid knock-on effect on the price of all goods and services.”

Martin said the number of money changers had increased to meet demand that was around one-fifth higher than last year under the free-market government of conservative Mauricio Macri, who was defeated in the October election by center-left Alberto Fernandez.

“It’s better for us now. We earn 10% more than before,” said Martin, adding clients were a mix of Argentines and tourists.

Under Macri’s government, the official and black market price of dollars had been largely in step. But since the controls came in the two rates have diverged, with the black market rate now around 30% higher - a gap not seen since the end of the last Peronist government in 2015.

A second often-cited rate, a legal workaround to access dollars known as a blue-chip swap, is even more expensive.

Macri had scrapped currency controls when he came to power in late 2015, but was forced to re-impose them in September last year after his shock defeat in a primary election caused currency market turmoil.

The primary result - and the market crash that followed - helped to push the country further towards an economic crisis and made Macri the underdog in an election that most had thought would be close.

But the controls have managed to hold the peso-dollar rate stable, even as other unofficial channels have flourished.

MONEY TABLES

The arbolitos, who say they receive between 0.5%-2% commission, take their clients to informal “money tables” where the currency transactions take place.

Aniuska, a 33-year-old Venezuelan working in the trade in the city, said she had seen around 70% more people buying dollars “due to the restrictions by the government.”

“Having these restrictions, people have no choice but to come and buy,” she said. Her group of arbolitos had grown from 3 people to 10.

“The truth is that if there are lots of us it does not suit me because there are fewer opportunities to get customers.”

The rise in demand echoes the situation under the previous Peronist government of Cristina Fernandez de Kirchner, who imposed capital controls during her 2007-2015 administration, creating a wide gap between official and black market rates.

Fernandez de Kirchner is now Vice President.

“Now it will be like it was with Cristina and that is better for us because there will be many more people who will want dollars. It suits us,” said one 26-year-old arbolito, who said she had worked in the trade for nine years.

The arbolitos said the work was not easy and meant long hours, but with the economy facing recession and employment down there were few alternatives.

An illegal money changer known as "arbolito", or little tree, holds an umbrella as he works in downtown Buenos Aires, Argentina February 3, 2020. Picture taken February 3, 2020. REUTERS/Agustin Marcarian

“I earn on commission, but it’s practically cents,” said one arbolito who gave his nickname as “El Pitufo” - the dwarf - who said he had previously worked in a leather clothing factory.

“But in the face of unemployment, doing this is the only thing left.”

($1 = 59.8860 Argentine pesos)

Reporting by Joan Manuel Santiago Lopez; Editing by Adam Jourdan and Jane Merriman

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