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 second quarter of 2004.

For the eighth consecutive quarter, the operations of authorized entities with their customers in the Single and Free Exchange Market (MULC) registered positive balances. In the second quarter of 2004, these operations resulted in a record surplus of US$ 2,462 million.

The current account of the exchange balance for the second quarter of the year registered a surplus of US$ 3,983 million, exceeding by 34% that recorded in the second quarter of 2003. Notwithstanding the lower net formation of foreign assets by residents, the foreign exchange capital and financial account resulted in net outflows higher than those observed in the same quarter of 2003 (US$ 1,544 million and US$ 1,306 million, respectively), due to the effects of lower investments by non-residents, higher net loan cancellations and other net movements.

This strong surplus in the second quarter was basically due to the fact that revenues from collections of exports of goods reached their highest point, not only due to the seasonal behavior of foreign sales of the coarse harvest and its derivatives, but also due to the strong growth in collections corresponding to exports of the remaining goods. Collections for exports of goods totaled US$ 9,118 million, showing a growth of 31% compared to the same period last year. Virtually all sectors showed significant year-on-year growth rates.

On the other hand, it should be noted that the reduction in net purchases of freely available foreign assets by the non-financial private sector during the second quarter of the year resulted in a decrease of 41% compared to the same period of the previous year and of 6% compared to the immediately preceding quarter, thus continuing the trend observed since the second quarter of 2002.

On the side of the demand for funds, payments for imports of goods for US$ 4,408 million were also highlighted, which reached a maximum in the MULC, and purchases of foreign currency by the National Treasury for US$ 1,080 million. Payments for imports of goods in the second quarter of 2004 implied an increase of about US$ 1,500 million, 51%, compared to the same period in 2003.

During the first half of 2004, the result of the MULC (US$ 3,551 million) was slightly lower than that observed in the same period of the previous year (US$ 3,639 million), although significant changes were noted in the flows for each of the items. The net supply of funds increased mainly due to higher receipts from exports of goods (US$ 3,300 million), which were accompanied by lower net formation of foreign assets by the non-financial private sector (US$ 500 million) and lower rent payments (US$ 200 million), especially due to lower interest payments. On the other hand, net demand for foreign currency increased due to higher payments for imports of goods (US$ 2,900 million), the increase in purchases by the national public sector (US$ 932 million) and the increase in net payments of financial loans (US$ 350 million).