The authorities cracked down on underground dollar operations on Thursday and Friday, raiding banks and launching investigations and filing complaints against brokerages.

The government also further restricted access to U.S. dollar bonds on Thursday. 

This comes as the dollarization of portfolios escalates in the face of the October 22 election, putting more pressure on the financial and informal US dollar markets.

The informal exchange rate — popularly known as the “blue dollar” — hit AR$880 on Friday, a 20% increase in the last two weeks and an all-time high.The blue-chip swap rate, the implicit dollar rate investors get by buying shares and financial instruments in pesos and selling them in dollars on the international market, ended the week at AR$893.

The MEP dollar (the financial rate investors get in the local market) made more moderate gains, reaching AR$812.7 on Friday. The government intervenes heavily in the MEP rate, and a report by the consultancy 1816 estimated that on Thursday alone, the Central Bank “burned” US$100 million in the MEP market to keep the price at bay.

This puts even further strain on net international reserves, calculated by the consultancy Ecolatina to be at negative US$6 billion on Friday.

Raids

On Thursday, customs raided 18 banks, eight accounting firms, and 25 other companies in downtown Buenos Aires, Rosario, Cordoba, and Bahía Blanca. They were investigating allegations that the raided parties had acquired US$400 million of cheap dollars through forged imports and wired them to 146 US firms.

On Friday, the national government published statements saying that the Federal Administration of Public Income tax bureau (AFIP, by its Spanish acronym) had identified operations in the market worth US$5 billion by two people who hadn’t filed tax returns. 

AFIP also found that 857 people with inactive tax identification numbers had apparently been active in the MEP dollar market, the government said.

AFIP filed a legal complaint against the president of Grupo IEB, a brokerage firm accused of “illegal maneuvers” in the purchase of bonds and dollars. Grupo IEB issued a press release saying that they were operating normally and denying that they had committed any irregularities. “Our company did not carry out any operations outside the norms and has not been notified of any procedures or sanction against it,” it said.

In a separate statement, the government said that the CNV was considering suspending the operations of Balanz, one of the most important brokers in the market, also accused of participating in those maneuvers.

“Balanz reports that we are working normally and without any type of restriction in our operations on Friday,” the company said in a press release.

Public officials had not formally commented on the accusations against the brokers at the time of writing.

Portfolio dollarization

“We come from several weeks of portfolio dollarization,” Santiago López Alfaro, president of the Patente de Valores broker, told the Herald. “Peso bonds are being sold and moving to US dollars, people with maturing fixed-terms are also moving to the US dollar.”

The average gap, or brecha, between the parallel and official exchange rate (the latter fixed at AR$350 since August 14) jumped by 15 points and is now at 135%, according to the consultancy Ecolatina.

On Thursday, after the blue chip swap rate reached the record value of AR$933.7, the National Securities Commission (CNV, by its Spanish acronym) published a resolution extending the parking period for marketable securities with foreign legislation from three to five business days. The minimum period to sell US dollars obtained through Argentine sovereign bond transactions was also increased from 15 to 30 days.

The resolution also requires broker firms to submit a weekly affidavit listing all foreign-market transactions they have entered, and to buy the same amount of sovereign bonds that they buy when operating within their own portfolio.

“It seems to me that the brecha generated a lot of concern in the government, which then limited access to the blue-chip swap rate with new regulations,” López Alfaro said. He added that the situation is worse than the usual pre-electoral portfolio dollarization due to the latest devaluation, the subsequent relief measures, the Central Bank’s purchase of bonds in pesos, and the fact that there are “many pesos in the economy” that are “seeking” US dollars.

Pablo Repetto, Head of Research at the broker Aurum, told the Herald that the government issuing pesos after it devalued and far-right libertarian candidate Javier Milei’s proposal of shuttering the Central Bank makes “everyone want to dollarize and escape from the pesos.”

According to Repetto, almost US$180 million were traded in the MEP and blue-chip swap rates on Friday, despite the government restrictions. 

“It is a maximum in a very long time,” he said. “They try to restrict, restrict, restrict, but the only thing that is achieved is that everything is adjusted by price because the truth is that there is no anchor, there is neither confidence nor reassuring proposals.”