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 2009.

Foreign exchange operations and the exchange balance in the fourth quarter of 2009

The general result of operations in the Single and Free Exchange Market (MULC) in the last quarter of 2009 reached a record surplus of US$ 4,424 million for a fourth quarter. This quarterly surplus was the highest observed in the MULC since the second quarter of 2007, before the start of the subprime crisis in the United States in July of that year.

The policies implemented and the improvement in the regional and international financial climate were reflected in a brake on the net demand for foreign assets by the non-financial private sector, this being the main explanation for the improvement in the MULC result. Sales made by the National Treasury for US$ 1,229 million also contributed to the surplus of the operations of the entities with customers.

Within the framework of the managed floating exchange rate policy and a prudential accumulation of international reserves, the Central Bank of the Argentine Republic (BCRA) made net purchases of approximately US$ 3,900 million in the quarter.

The BCRA’s international reserves once again registered an increase, which totaled US$ 2,619 million in the quarter. The BCRA’s interventions in the foreign exchange market and the entry into the reserves of the Special Drawing Rights assigned to the Argentine Republic by the International Monetary Fund in August and September 2009 for the equivalent of about US$ 2,700 million, were the main sources of the quarterly increase. These sources of funds were partially offset by the payments of debt services in foreign currency by the BCRA and the public sector, and by the withdrawals of funds from the National Treasury from its operating account. Thus, despite the context of the global financial crisis, the BCRA’s international reserves closed 2009 with a stock of US$ 47,967 million, 3% more than at the end of 2008, more than triple the level at the end of 2001 and five times the minimum values observed in mid-2002.

The current account of the exchange balance for the fourth quarter was practically balanced, falling by about US$ 2,600 million compared to the surplus of the same quarter of 2008, this being mainly explained by the decrease recorded in net income from transfers of goods.

Collections of exports of goods totaled US$ 13,235 million, which implies a year-on-year drop of 19%. Likewise, payments for imports of goods reached US$ 10,164 million, registering a year-on-year decrease of 10%.

After nine consecutive quarters of deficit, the operations of the foreign exchange capital and financial account resulted in a surplus of US$ 2,666 million, reversing the result recorded in the fourth quarter of 2008 by more than US$ 6,000 million. This result was basically due to the decrease in the net demand for the formation of foreign assets by residents (for the first time since 2005, a net income was recorded in the purchase and sale of banknotes in foreign currency by the public). Likewise, net income from medium- and long-term financing, either through financial loans or direct investments from non-residents, continued.

The entities authorized to operate in foreign exchange increased their holdings in foreign currency, including the foreign assets that make up the general exchange position and the holdings in the BCRA (deposits and passive passes), by about US$ 300 million. They also reduced their forward position in foreign currency by about US$ 1,960 million, to re-register a sold position that totaled US$ 300 million as of December 31, 2009.

Foreign exchange operations and the exchange balance in 2009

The operations in the MULC of the authorized entities with their clients ended 2009 with a surplus of US$ 2,252 million, reflecting a significant reversal of about US$ 6,200 million with respect to the deficit of US$ 3,964 million observed in 2008.

This variation is basically explained by the marked slowdown in the change of the private sector portfolio in favor of foreign assets, observed from mid-2009, which was even reversed in net income towards the end of the year, and by the performance of the National Treasury in the MULC.

While in 2008 the National Treasury acquired US$ 1,566 million in the MULC to cover part of its needs in foreign currency, in 2009 it offered US$ 1,229 million and covered its foreign exchange needs with direct purchases from the BCRA. If the operations of the National Treasury in the MULC are excluded, the result of the 2009 foreign exchange market totals a surplus of about US$ 1,000 million, compared to a deficit of approximately US$ 2,400 million in 2008.

In 2009, the BCRA made net purchases of foreign currency in the spot foreign exchange market for about US$ 3,300 million, which together with the allocation of SDRs from the IMF to the Argentine Republic for the equivalent of about US$ 2,700 million, constituted the main factors of the annual increase in international reserves of US$ 1,582 million recorded in the year. Meanwhile, the net payments of debt services in foreign currency by the BCRA and the public sector for some US$ 5,700 million represented the most important contractionary component on them.

The current exchange account registered a surplus of US$ 9,449 million (equivalent to 3% of the Gross Domestic Product), which, however, implies a fall of about US$ 6,200 million compared to the result observed in 2008. This variation was mainly explained by the fall in net income from trade in goods and services, as a result of the effects of the international crisis, and by higher net interest payments, resulting, on the one hand, from the lower yield on international reserves and, on the other, from higher payments by the national public sector, to a certain extent due to payments of Units linked to GDP growth.

When accompanying the variations in the movements of goods abroad, the collections of exports of goods totaled US$ 53,157 million, which resulted in a year-on-year drop of 22%. Likewise, payments for imports of goods reached US$ 36,722 million, that is, a year-on-year decrease of 23%.

After the previous year’s record of US$ 3,552 million, the transfers of profits and dividends through the MULC reached a total of US$ 3,183 million.

The foreign exchange capital and financial account, on the other hand, totaled a deficit of US$ 8,074 million in 2009, although it practically constituted half of the negative result recorded in 2008 (US$ 15,671 million).

Although the capital and financial account of the non-financial private sector (NFPS) accumulated a deficit of US$ 11,764 million, this result implied an improvement of about US$ 8,500 million with respect to the net expenditures of US$ 20,250 million observed in 2008.

The net demand for foreign assets of free availability of the NFPS totaled about US$ 14,500 million, reflecting a drop of 37% compared to the US$ 23,165 million recorded in 2008.

For the fourth consecutive year, net disbursements of financial loans to NFPS were recorded. On the other hand, although to a lesser extent, net income from direct investments by non-residents continued.