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 fourth quarter of 2004.

Fourth quarter of 2004

The positive balance of foreign exchange operations in the fourth quarter of the year continued to be the main source of financing for the growth in the level of activity and supply of the seasonal demand for money that is recorded at the end of the year, in a framework of confidence of operators. This led to the fact that in the context of exchange rate and monetary policies, the Central Bank exceeded in December the maximum level of purchases in the foreign exchange market (totaling US$ 1,408 million), which allowed it to reach a record annual increase of US$ 5,528 million in the level of international reserves, which totaled US$ 19,646 million at the end of the year. reaching a level similar to that recorded in mid-2001.

For the tenth consecutive quarter, the operations of authorized entities with their customers in the Single and Free Exchange Market (MULC) registered positive balances. In the fourth quarter of 2004, these operations showed a surplus of US$ 2,429 million, a level similar to the historical maximum of the second quarter of the year, a period characterized by strong foreign exchange earnings from shipments of the coarse harvest.

The BCRA’s net purchases in the market in the quarter for US$ 2,772 million exceeded the surplus of the MULC, capturing part of the holding of liquid assets in foreign currency of financial institutions.

The current account of the foreign exchange balance for the last quarter of the year registered a surplus of US$ 2,280 million, 23% higher than the US$ 1,851 million in the fourth quarter of 2003.

The surplus of merchandise transfers of US$ 2,858 million in the fourth quarter of 2004 was explained by export receipts of US$ 8,057 million, with generalized increases in all sectors (year-on-year increases of 9% in liquidations in the oilseeds and cereals sector, and, mainly, of 39% of the revenues of the rest of the sectors). which were partially offset by import payments that reached a quarterly maximum since the MULC came into force, of US$ 5,199 million.

The lower net formation of foreign assets by the private sector (financial and non-financial private) absorbed the increase in payments to international organizations and allowed the quarter to close, with a decrease of almost US$ 100 million in the deficit of the capital account and foreign exchange finance (US$ 1,134 million), compared to the last quarter of 2003.

Net demand for freely available foreign assets from the non-financial private sector (NFPS) in the fourth quarter was the lowest in the history of the MULC.

Non-resident portfolio investments increased significantly (about US$150 million) compared to the third quarter of 2004, as a result of capital inflows mainly for stock market investments, while direct investment contributions continued at levels similar to those observed in previous quarters.

Year 2004

The surplus of US$ 7,443 million in the foreign exchange market in 2004 (20% higher than that observed in 2003) is basically explained, as in previous years, by the net balance of transfers for goods, including their financing. Net investments by non-residents contributed less significant amounts to the positive balance, with net outflows recorded through the net formation of private foreign assets, the payment of rents, purchases by the National Treasury and the payment of financial loans.

The higher annual surplus of the MULC was the result of the lower demand for funds for the net constitution of foreign assets of the NFPS by almost US$ 1,000 million, for the payment of rents for just under US$ 400 million and for net cancellations of financial loans for around US$ 260 million. This lower demand, together with the greater supply of foreign currency for transfers for goods and investments by non-residents in the country for approximately US$ 240 million, were partly offset by the increase in purchases by the national public sector for US$ 1,017 million.

In 2004 as a whole, the current account reached a surplus of approximately US$ 10,150 million (about US$ 1,400 million more than in the previous year) and the capital and financial account a deficit of about US$ 4,800 million (slightly more than US$ 300 million less than in 2003).

The year-on-year increase in export receipts for the year, which was manifested in a generalized way in all sectors, slightly exceeded in absolute magnitudes, the 50% increase in payments for the largest purchases of goods, so that the result of transfers for goods increased by about US$ 180 million.

On the other hand, the net constitution of freely available foreign assets of the NFPS, which in part can be applied later to the cancellation of external obligations, was just over US$ 2,400 million, about US$ 1,050 million (30%) less than in the previous year.

Net payments of capital by the public sector and the BCRA to international organizations reached US$ 2,053 million, exceeding by some US$ 1,000 million the payments made in 2003.

The total volumes traded in the foreign exchange market experienced a significant increase throughout 2004, showing a total traded 35% higher than that observed in the previous year.