Argentina May Lure $10 Billion to Stocks If Restrictions Lifted

By Eliana Raszewski and James Attwood

Aug. 28 (Bloomberg) -- Argentina’s stock exchange called on the government to lift capital controls that caused it to become the only major Latin America market classified as “frontier,” adding the move may help lure $10 billion in foreign investment.

A requirement for international investors to deposit 30 percent of what they put in Argentina with the central bank for a year “have stopped making sense,” Adelmo Gabbi, the Buenos Aires stock exchange’s chairman, said yesterday in a speech.

Capital controls prompted MSCI Inc. to remove Argentina from its benchmark emerging-market index in June, assigning it the so-called frontier status along with the world’s least developed markets. The controls have helped Argentina avoid volatility, said President Cristina Fernandez de Kirchner.

“We have to seek a rule so that the inflow of funds won’t be speculative,” she said, without elaborating.

New York-based MSCI, which estimates its indexes are tracked by funds with $3 trillion, classifies its markets based on size, liquidity and economic development. Argentina’s demotion also followed Fernandez’s seizure of about $24 billion in assets held by private pension funds, the country’s biggest stockholders.

“We want to stop being the only country in the region that participates in the frontier index because we feel that we have more in common with Latin America than with Nigeria, Ghana and Kenya,” Gabbi said.

Merval’s Rally

Argentina’s Merval stock index has rallied 65 percent this year after last year’s 50 percent slump. It’s little changed over the last 12 months. A return to emerging market status would bring back about $10 billion in foreign funds to the market, Gabbi said.

MSCI said in December it would keep Colombia classified as an emerging market after the country removed restrictions on foreign investment in its stock market. Colombia in September lifted requirements that foreigners deposit 50 percent of stock and convertible bond investments with the central bank for six months.

“The deposit requirement was imposed in 2005 and was one of the forces that allowed us to confront the brutal volatility of the markets during the crisis,” Fernandez responded yesterday in a speech at the Buenos Aires stock exchange.

Fernandez’s husband and predecessor Nestor Kirchner imposed deposit requirement in order to discourage speculators from investing in local markets after the country restructured about $104 billion in bonds.

The measure aimed to cap a rise in the peso that would make Argentine goods less competitive abroad. Argentina’s currency has weakened 10 percent against the U.S. dollar this year as other currencies in the region have strengthened.

Fernandez said yesterday that the arrival of funds aimed at increasing production and creating jobs in South America’s second-biggest economy may be excluded from restrictions.

To contact the reporter on this story: Eliana Raszewski in Buenos Aires at eraszewski@bloomberg.netJames Attwood in Santiago at jattwood3@bloomberg.net;