Informe de Mercado de Cambios, Deuda y Formación de Activos Externos 2015-2019

The Presidency of the Nation requested this Central Bank to prepare a detailed report on what happened in terms of regulation, access and operation of the foreign exchange market in the period between December 2015 and December 2019.
Given its statistical resources, the BCRA is in a privileged position to expose and analyze some of the economic and financial processes that led to the crisis that is affecting the country today.
The first section of this paper provides a brief review of the specialized literature that accounts for the history and dynamics of external debt crises in Latin America. In the second section, the mechanisms on which the process of indebtedness and capital flight that triggered the current debt crisis were built are presented. Finally, in the third section, the main conclusions of the statistical analysis on the operations carried out in the foreign exchange market in the period under study are reflected.

Executive summary

• At the end of 2015, a profound paradigm shift was launched in the approach to exchange, monetary and debt policy aimed at deregulating the markets. As in previous experiences of extreme liberalization, the measures were the starting point of a serious crisis that affected the Argentine economy.

• During the capital inflow phase between December 2015 and early 2018, approximately 8 out of every 10 dollars that entered the country from abroad originated in debt placements and speculative capital. The income of foreign currency from public and private debt and speculative portfolio investments totaled USD 100,000 million in the period. In 2018, after the closure of the voluntary credit markets, a sharp reversal in capital flows began, in response to which the authorities decided to turn to the International Monetary Fund (IMF), which disbursed a record loan of USD 44,500 million.

• Over the entire period, residents’ foreign asset formation (FAE) (colloquially called “capital flight”) tripled, exceeding USD 86,000 million. Even during the first phase of boom and capital inflows, the formation of foreign assets by residents reached USD 41,100 million. In the stage of acceleration of capital outflows, as of May 2018, the FAE reached USD 45,100 million.

• Capital flight in the period shows a notable concentration in a few economic actors. A small group of 100 agents made net purchases for USD 24,679 million. For its part, the FAE of the 10 main buyers accounts for USD 7,945 million.

• When differentiating between individuals and legal entities, it is observed that only 1% of the companies that made net purchases acquired USD 41,124 million in foreign asset formation. In the case of individuals, only 1% of buyers accumulated USD 16,200 million in net purchases during the period.

• After a severe exchange rate crisis, the application of exchange controls at the end of October 2019 proved to be an effective tool to mitigate “capital flight” in a context of extreme macroeconomic volatility.

• In an economy that historically finds external constraint (i.e., chronic lack of foreign exchange) as one of the main limits to development, the more than USD 86 billion that fled in the form of foreign asset formation is equivalent in terms of lower growth and investment, higher unemployment, and deterioration in income distribution.

• The dramatic adjustment process unleashed in the context of deregulation allows us to observe that the exchange rate levels required to balance the demand for hoarding in an environment of extreme liberalization are clearly unsustainable politically and socially. Controls on the capital and financial account of the balance of payments are therefore a necessary condition not only for the country’s economic recovery, but also within the framework of a comprehensive development strategy.