By Jens Erik Gould From The Financialist

For more than a decade, Argentina has been on the outside looking in as far as international debt markets are concerned. It’s been that way ever since the country defaulted on $95 billion in debt in 2001, a crisis that led to foreign capital flight and a sharp currency devaluation, followed by inflation and increased poverty. In 2014, in the hopes of finally putting its reputation to bed, the country agreed to settle debt disputes with the Paris Club of creditor nations. That helped foreign investors regain some confidence, which put the government of President Cristina Fernández de Kirchner one step closer to returning to foreign markets. But then things turned ugly again. The government missed a July 30 deadline to reach a deal with international holdout creditors over $1.5 billion in soured bonds, and again went into default.

Renewed access to global markets would be a boon to the economy, not only in the form of lower borrowing costs but in increased capital inflows as well. Argentina is still grappling with declining foreign reserves and one of the world’s highest inflation rates. Still unable to obtain external financing despite inching closer last year, the country is resorting to the same economic policies that have spelled trouble in recent years. Namely, it’s relying too heavily on foreign reserves to repay creditors and fund imports, in large part because it can’t secure financing from abroad. Also, there’s a severe lack of dollar inflows from foreign investment. Investor sentiment has gone cold since the government began expropriating private company assets—such as its 2012 seizure of Spanish oil company Repsol’s operations.

The country’s gross foreign reserves fell from $52.2 billion in 2010 to a low of $26.9 billion in 2014. Argentina’s solution? Capital controls. The government has been taxing dollar purchases in a bid to keep more foreign currency in the country. Force your population to buy only local goods, though, and you’re going to fuel inflation, which is expected to clock in at 30 percent this year. The government appeared to indicate as much when it unexpectedly announced in January that it would actually ease currency controls, reducing the tax rate on dollar purchases from 35 to 20 percent.

Stuck in its foreign currency mire, the country has been left with few options but further interference in the workings of the national economy. And if prices won’t stay down on their own, they’ll stay down by fiat: Argentina has capped prices of hundreds of goods. While those price controls are nominally voluntary, the government has fined foreign retailers Wal-Mart and Carrefour for allegedly failing to comply. “Argentina is increasing controls all over the place,” says Mauro Leos, senior credit officer at Moody’s, in an interview with Credit Suisse at its Latin America Investment Conference in Sao Paolo.

The biggest concern regarding these policies, says Leos, is that they stifle the economy. “More than anything, this translates to lower growth,” he says. Indeed, Credit Suisse estimates GDP contracted 0.2 percent last year. If there’s any silver lining, it’s that there’s unlikely to be any contagion from Argentina’s problems in the rest of the region. “The market is making a clear differentiation,” Leos says, “between what we are seeing in Argentina and what we could see in other countries.”

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