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 2007.

In a context of record harvest and with a favorable level of international prices for agricultural products, the operations of authorized entities with their clients in the Single and Free Exchange Market (MULC) showed a surplus of US$ 5,745 million in the second quarter of 2007. This result was the highest achieved since the MULC came into force in February 2002, and implied an increase of approximately 50% over the surplus recorded in the same quarter of 2006.

External income in the second quarter of the year is seasonally high, basically due to exports of the coarse harvest and, to a lesser extent, due to the foreign exchange income of residents under different concepts to finance the payment of tax maturities.

The year-on-year increase in the surplus was mainly due to higher net receipts from financial goods and loans, and the reversal of flows of non-financial private sector (NFPS) freely available foreign assets from net demand to net supply of funds.

With the surplus for the quarter, twenty consecutive quarters were accumulated with positive results in operations with customers of the entities authorized in the MULC, with the balance of commercial transactions being the main source of foreign currency.

The record surplus of the MULC had its counterpart in an unprecedented quarterly increase in the BCRA’s international reserves. The monetary authority’s net purchases of foreign currency in the foreign exchange market were the main source of the quarterly increase in reserves.

For the third consecutive quarter, the volume of the MULC reached a new high, totaling US$ 81,767 million, an amount that exceeds the record of the previous quarter by 27% and was 45% higher than that recorded in the same period of 2006.

The current account of the foreign exchange balance also registered a record surplus since the MULC came into force, with net revenues of US$ 4,680 million, 23% higher than the result of the same period in 2006.

Collections of exports of goods totaled US$ 13,930 million, growing 19% year-on-year, while payments for imports of goods reached US$ 8,607 million, showing a growth of 21% compared to the same period in 2006. Both recorded the quarterly highs of the MULC.

The operations of the foreign exchange capital and financial account resulted in a net income of US$ 1,669 million. This surplus was due to both private and public sector net incomes.

The NFPS foreign exchange capital and financial account registered a year-on-year increase of about US$ 750 million, mainly explained by the reversal in net flows from freely available foreign assets, which went from a net demand to a net supply of funds, and the higher net disbursements of financial loans, especially from income from placements of negotiable obligations (ON).

The placements of BONAR made by the National Government and issuances of public securities of local governments were reflected in net capital inflows of the public sector.