Argentina tightens dollar exchange controls

Some exchange houses remained closed as the new rules came into force

The Argentine government has imposed new restrictions on the purchase of US dollars, in an attempt to reduce capital flight and tax evasion.

People wanting to exchange Argentine pesos for dollars must now explain where they got the money, and show they have paid their taxes.

Currency trading in Buenos Aires on Monday was much reduced as a result.

Many Argentines buy dollars to protect their wealth from inflation - thought to be higher than officially stated.

People buying dollars now have to give their national identity and tax number, which must then be approved by the national tax agency (AFIP) before the transaction can go ahead.

Reports from Buenos Aires said the process was taking as much as an hour, with many people having their requests turned down.

Some exchange houses remained closed.

'Hysteria'

The new rules came into force on Monday after being announced by finance minister Amado Boudou last Friday.

"This is an important measure to combat tax evasion and money laundering," he said.

"Those who have their accounts in order should remain calm, while those who engage in shady manoeuvres should be very nervous".

Mr Boudou also warned against "intentional efforts" to stir up "collective hysteria" around the move.

The new currency controls were introduced a week after President Cristina Fernandez de Kirchner was reelected by a huge margin.

Under her leadership Argentina has enjoyed sustained economic growth.

But inflation has also risen - the government says the annual rate is around 10% but some independent experts put it as high as 25%.

Billions of dollars worth of capital have been flowing out of the country as wealthy Argentines seek to protect their money from inflation and a possible devaluation of the peso.

The government has been selling its dollar reserves on the currency market to stem the peso's losses, while also seeking to limit capital flight.

Argentina's recent history of severe economic crisis has caused many people to view the US dollar as a safe haven, and to keep part of their wealth outside the country.

In the 1980s the country suffered periods of hyperinflation.

A financial crisis in 2001-02 caused a collapse in the value of its currency and led the government to freeze people's bank accounts. It also defaulted on its foreign debts.