UPDATE 1-Argentina cracks down on currency trafficking amid FX battle

(Updates with government crackdown on FX trafficking)

BUENOS AIRES, Oct 21 (Reuters) – Argentine police forces have carried out a series of raids to crack down on foreign currency trafficking, a government source said on Wednesday, which comes as the country looks to counter a FX crisis that has seen black market dollar trades flourish.

The raids are part of nearly two-year investigation into suspected money laundering, foreign currency trafficking and potential drug trafficking by organizations with ties to Bolivia, Chile and Peru, the official added.

The raids come as Argentina has moved to bolster capital markets with a series of new measures to improve liquidity and reduce volatility that has risen in recent months.

Argentine authorities are trying to rein in a huge gap between the official peso exchange rate and alternative trades, some illegal and some legal workarounds that enable individuals and companies to access greenbacks.

The black market rate and the so-called blue-chip swap rate were around 183 pesos and 176.6 pesos per dollar on Wednesday, over double the 78 peso price via the official rate. There are strict restrictions on Argentines buying dollars and a steep levy to obtain them.

The South American country is battling a long-running economic crisis, with an expected 12% contraction this year, and is gearing up to negotiate a new program with the International Monetary Fund after emerging from a sovereign default.

Recent measures to bolster the capital market include reduced “parking” periods that investors have to hold securities before being allowed to trade them, moves to improve liquidity of local instruments and a planned $750 million debt issuance.

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