Argentina's 'little trees' blossom as forex controls fuel black marketBUENOS 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.

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 stabilize 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 ARS=RASL 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.

“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.”


IMF sees 'important moment' for Argentine debt restructuring

VATICAN CITY (Reuters) - International Monetary Fund Managing Director Kristalina Georgieva said on Wednesday that now was a “very important moment for Argentina” to enact policies for successful debt restructuring.

Speaking at a Vatican conference on economic solidarity, she told Reuters that the policies must stabilize the Argentine economy and ensure that the most vulnerable in society are not left out.

Georgieva and Argentine Economy Minister Martin Guzman, who is also at the conference, held what both said were constructive talks on the Latin American country’s debt crisis on Tuesday night.

“It is very important moment for Argentina to put in place policies that are going to stabilize the economy, lead to successful debt restructuring and respond to the expectations of people that those who are the most vulnerable not be left out,” she said.

Guzman told Reuters that his talks with Georgieva were “very good and constructive”, while she told reporters that it was a “very constructive meeting”.

Argentina needs to restructure $100 billion in sovereign debt with creditors, including the IMF, amid a steep recession with inflation above 50%

The Vatican conference at the Pontifical Academy of Social Sciences brought together more than 25 government officials, religious authorities, and economists, including Joseph Stiglitz, the 2001 Nobel economics laureate.

“We are going to discuss how the world economy can be more oriented toward the needs of everyone, how it can serve the aspirations of all people and it (the Vatican) is a good place to have that discussion,” said Georgieva, who is Bulgarian.

Last Friday, Argentine President Alberto Fernandez met Pope Francis and said the pontiff, who is also Argentine and lived through a previous debt crisis when he was archbishop of Buenos Aires, had promised him to do everything he could to help with the current one.

Fernandez has promised to bridge social divisions and roll out a massive credit system with low rates to bolster domestic demand, and to boost spending to address hunger and poverty.

Stiglitz told the conference that the current Argentine debt crisis gave the world an opportunity “to show that there is an alternative approach to the one that has failed persistently in the past”.

He called for “a framework that simultaneously should appeal to notions of economic rationality and to our sense of social solidarity, a common humanity, which at this point in history seems so under attack”.