Report on the Evolution of the Foreign Exchange Market and the Foreign Exchange Balance

This report analyzes the evolution of purchases and sales of foreign currency in the foreign exchange market, corresponding to the first quarter of 2005.

In the first quarter of 2005, the operations of authorized entities with their clients in the Single and Free Exchange Market (MULC) registered a surplus of US$ 921 million, an amount that includes purchases of US$ 1,664 million from the National Treasury.

If private sector operations are considered exclusively, the MULC surplus totaled US$ 2,660 million, a level that is among the highest in the series, behind the seasonally high surplus of the second quarter of 2004, and more than double the foreign exchange result of the sector’s operations in the first quarter of 2004 (approximately US$ 1,250 million).

The volume traded in the MULC was the highest since its establishment in February 2002. Total operations totaled US$ 41,405 million, 2% higher than the previous peak (second quarter of 2004) and 28% higher than that recorded in the same period of 2004.

The participation of entities in operations with customers is strongly concentrated. The first ten entities authorized to operate in foreign exchange captured almost 70% of the total operated with customers.

The current account of the exchange balance for the first quarter of 2005 registered a surplus of US$ 2,356 million, exceeding the surplus of the first quarter of 2004 (US$ 2,032 million) by about US$ 320 million (16%). The surplus of merchandise transfers continued to be the main component of the current account surplus.

Collections of exports of goods in the first quarter grew by 24% compared to revenues in the same period of 2004, basically as a result of the sharp increase in revenues from the oil, automotive, base metals, chemical industry and food and beverage sectors, while there were no significant variations in the total income from the agro-export sector.

Total payments for imports of goods were US$ 5,066 million, an amount 33% higher than that recorded in the same period of the previous year.

For its part, the foreign exchange capital and financial account registered net outflows of US$ 1,503 million, about US$ 350 million (31%) more than the deficit observed in the same period of the previous year. The deficit originated basically in net payments to international organizations, especially the International Monetary Fund, and in the net cancellations of financial loans from the private sector, including significant amounts of debt pre-cancellations with external creditors.

For the second consecutive quarter, a low propensity to invest in foreign assets was observed by NFPS. The net demand for freely available foreign assets in the quarter was the lowest in the history of the MULC and was channeled through the net purchase of foreign currency (foreign assets constituted abroad), since, for the second consecutive quarter, there was a net sale of foreign currency banknotes by residents.

Portfolio investments, mainly for stock market investments, deepened the increase in revenues that had already begun to be recorded in the fourth quarter of the previous year, reaching US$ 560 million.

As of March 31, 2005, the stock of international reserves totaled US$ 20,339 million, reaching the levels of mid-2001 and accumulating a year-on-year increase of more than US$ 5,300 million.