By Leila Miller

BUENOS AIRES (Reuters) - On the streets of downtown Buenos Aires, where years of tough currency controls fermented a thriving black market for dollars, an army of illegal money traders are finding times hard under the economic reforms of Argentine President Javier Milei.

Milei tore down most currency controls last month, easing access for Argentines to official currency markets after six years of restrictions.

That is not good news for the street traders, known locally as "arbolitos" (literally, little trees), but has been welcomed by locals and companies who can now exchange pesos for dollars at greater amounts and with more ease than before.

Part of a wider set of economic reforms Milei has enacted since taking office in late 2023, the easing of currency controls is a bold attempt to shake the economy out of years of crisis that had made the South American country a pariah of global markets.

Investors had called for the end of capital controls to boost trade and erase distortions caused by huge gaps between the official exchange rate and the black market.

In recent weeks, the dueling FX rates converged for the first time since 2019, when the government had imposed capital controls to defend a crashing peso currency.

Everyday Argentines no longer need to resort to the black market to get their money's worth, while companies are able to access dollars to pay for imports without having to abide by a previous waiting-period.

"It brings back confidence to the financial system," said Ariel Coremberg, an economist at the University of Buenos Aires and an adviser to Milei, adding that the measure will increase taxable flows as fewer people seek black market dollars.

"Us arbolitos here are going through a crisis," said Francisco, 50, a black market trader in front of a flower stand on a busy street in downtown Buenos Aires last week, who asked to only be identified by his first name.

Nearby, another money trader who gave his name as Leo said: "Our legs are being cut from under us."

GOVERNMENT SEEKS TO LURE INVESTORS

The winding down of currency controls was part of a larger macroeconomic shift that was key to the country sealing a new $20 billion deal with the International Monetary Fund last month and starting to lure investors it needs to boost the economy. Companies will be able to send new profits abroad without facing the restrictions they did previously.

Foreign investors "all reacted well" to the lifting of the currency controls, said Fausto Spotorno, an economist at the OJF consultancy in Buenos Aires. "The question is where this money will be invested."