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Argentine cash controls bring bargains, headaches

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Photo -   In this June 1, 2013 photo, Paraguayans returning from shopping in Clorinda, Argentina carry boxes and bags across the international bridge over the Pilcomayo River into the town of Nanawa, Paraguay. Shoppers who turn to the street rather than the banks to swap their dollars are getting a bonanza of extra Argentine pesos and can shop much more cheaply than back at home due to Argentina's currency controls and black market for US dollars. Taking advantage of the guarani’s newfound strength, Paraguayans are rolling by the thousands into the Argentine frontier city of Clorinda to do their shopping. (AP Photo/Jorge Saenz)
In this June 1, 2013 photo, Paraguayans returning from shopping in Clorinda, Argentina carry boxes and bags across the international bridge over the Pilcomayo River into the town of Nanawa, Paraguay. Shoppers who turn to the street rather than the banks to swap their dollars are getting a bonanza of extra Argentine pesos and can shop much more cheaply than back at home due to Argentina's currency controls and black market for US dollars. Taking advantage of the guarani’s newfound strength, Paraguayans are rolling by the thousands into the Argentine frontier city of Clorinda to do their shopping. (AP Photo/Jorge Saenz)
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BUENOS AIRES, Argentina (AP) — The Brazilian visitors gawk in wonder as they stroll past shop windows along touristy Florida street in the Argentine capital. The jackets, the shoes — they're all so cheap when your purse is stuffed with black-market money.

Visitors who turn to the streets rather than the banks to swap their dollars in Argentina are getting a bonanza of extra pesos and can shop much more cheaply than back at home. A leather jacket that costs $250 in Lima, Peru, can be had for about $150 in Buenos Aires.

"We find differences in the food, the perfumes, the shoes ... with almost everything," said 27-year-old Edjane Mendes, who was browsing Florida street with her 19-year-old friend Michele Aline. Both are Brazilians studying in Buenos Aires.

The weakening peso has led to a flood of day-trippers and other visitors from neighboring countries into Argentina, which keeps tightening its currency controls in hopes of protecting foreign reserves and reducing the flight of dollars. Argentines who feel their savings are perpetually at risk tend to save in other currencies, and in other countries, whenever they can.

Inflation now runs at about 25 percent a year, according to independent economists, while the government is trying to gradually devalue the peso by about 20 percent a year against the dollar. So with their buying power rapidly eroding, Argentines are more eager than ever to hedge their losses by swapping pesos for dollars. The government has responded with a series of measures since late 2011 that have made it nearly impossible to legally obtain dollars at the official rate. But that has only made many Argentines more desperate.

As a result, many evade the formal financial system and buy black-market greenbacks that Argentines euphemistically call "blue dollars." Web sites now report the latest prices, giving everyone a common reference to make trades by. That means anyone entering the country with dollars can find willing buyers wherever they go in Argentina, without having to risk shady deals in dark alleys.

This blue-dollar rate briefly topped 10 pesos before the government stepped in to contain the bleeding, in part by using reserves to increase the supply of dollars circulating inside the country. On Monday, it was holding at 8 pesos, still a 50 percent premium over the official rate of 5.34. But central-bank intervention is a tool the government can only use so often: Already this year, its foreign reserves have fallen by 11 percent to $38.6 billion.

On the streets of Argentina, the difference between living at one rate and dealing in another is so great that "it seems like living in two countries; yes, it's like another country, somehow living underground," Italian tourist Mario Clemente marveled as he shopped in Buenos Aires.

The phenomenon also has had a major impact in border towns and in resort areas such as the ski town of Bariloche, where Brazilian tourists are keeping hotels and ski slopes busy, largely displacing Argentines for whom the country's high-end resorts have become more expensive than trips to the U.S. or Europe.

"In these times, it's to their advantage if they come with dollar bills and change them here," said Bariloche's tourist secretary, Fabian Szewczuk.

Unlike its neighbors, Argentina has no access to foreign lending, given its history of refusing to pay all its sovereign debts and international court judgments. And it has spent heavily to stimulate its economy, fueling inflation. The mix puts immense pressure on the government to maintain dollar reserves to sustain faith in Argentine pesos. But the controls and the resulting currency mismatches are causing headaches for nearby governments, which have had to impose tough medicine on some of their own people as a result.

Uruguayan housewife Sara de Ferrere has been going abroad to do her shopping, taking the bridge over the Uruguay River to find cheaper prices in Concordia, Argentina, than can be found in her hometown of Salto.

"Everything's half price," she said, and what's more, Argentine shopkeepers "ask you please to pay with dollars, so in addition to the exchange (rate), they give you a reduction on the price."

So many of de Ferrere's neighbors were joining her that gasoline sales fell "between 20 and 40 percent" on the Uruguayan side, said the local chamber of commerce secretary, Miguel Feris. Uruguay responded with a "Zero Kilos" program, barring its citizens from bringing back Argentine goods if they've been gone for less than a day. Since then, lines of cars at the border have disappeared, and gas sales have stabilized.

"They don't let you bring absolutely anything," de Ferrere said. "I went to Concordia and bought clothing that I wore and two or three other little things in my purse. But if they see you with a bag or packages, they take it from you."

Even so, Argentina-bought clothes and cosmetics can be found in the street fairs of Salto, brought in by small-scale smugglers working across the porous border.

The situation is much the same in Paraguay, where people joke that their currency, the guarani, has so many zeros that everyone is a millionaire. Taking advantage of the guarani's newfound strength, Paraguayans were rolling by the thousands into the Argentine frontier city of Clorinda to do their shopping.

Paraguay's government increased customs inspections after receiving complaints from the country's Industrial Union business chamber, but the flow isn't just one way.

Argentines denied legal dollars back home often cross the border to buy dollars at a better-than-blue rate, and then benefit from the difference. That has offered a profit opportunity for Argentines who can buy dollars for 8.3 pesos in the Paraguayan city of Encarnacion and then sell them for 7 percent more at home. And as the "blue dollar" soared to 10 pesos, Argentines carrying bank cards took the ferry to Uruguay just to pull money from cash machines, waiting for hours in lines for dollars they could trade back home.

Argentina responded by limiting withdrawals using debit and credit cards by its citizens to $50 a month in neighboring countries, but that doesn't stop the cash flowing outside the banking system.

All these distortions pose a threat to the dollar reserves of Argentina's neighbors. Paraguay's Economy Minister, Manuel Ferreira Brusquetti, estimated that some $200 million had left Paraguay for Argentina in May alone.

"We are present at the beginning of the end of the Argentine model, which is not sustainable any more," he said, "and so (Argentina) is taking measures that oblige Argentines to buy dollars in our country and generate a flight" of currency.

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AP writers Pedro Servin in Asuncion, Paraguay; Pablo Fernandez in Montevideo, Uruguay; Marianela Jarroud in Sanitago, Chile; and Lucas Bertellotti and Paul Byrne in Buenos Aires, Argentina, contributed to this report.

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