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 2010.

Main aspects

In the context of record harvests of the country’s main crops and historically favorable international prices for agricultural products, operations in the Single and Free Exchange Market (MULC) of the entities authorized to operate in foreign exchange with their customers totaled a surplus of about US$ 4,000 million in the second quarter of 2010. reaching one of the highest quarterly surpluses since the entry into force of the MULC.

This result represented a significant improvement over the deficit of approximately US$ 350 million recorded in the same period of the previous year and the practically balanced result of the first quarter of 2010. These variations basically reflected the record quarterly surplus of foreign exchange transfers for goods, in the context of the sustained trade surplus of the Argentine economy, and the slowdown in the net demand for freely available foreign assets by residents of the non-financial private sector.

Within the framework of the Central Bank’s policy of prudential accumulation of international reserves, it made net purchases of foreign currency in the foreign exchange market for US$ 3,750 million in the quarter, absorbing practically all of the MULC’s surplus. On the side of the applications of international reserves, the net payments of debt in foreign currency of the public sector and BCRA for some US$ 2,250 million stood out. As a result, the Central Bank’s international reserves registered a quarterly increase of US$ 1,780 million, reaching a stock of US$ 49,240 million as of June 30, 2010.

In line with what has been observed since 2003, the increase in the BCRA’s international reserves in the first half of the year continued to be basically the result of the current account surplus, within the framework of a period of net external deleveraging of the public sector and the BCRA. This behavior differs from the accumulation of international reserves observed in the past decade, in which the increase in these reserves was basically offset by the net external indebtedness of the public sector and the BCRA, as can be seen from the evolution of the capital and financial account of the balance of payments sector.

The current account of the foreign exchange balance resulted in a surplus of US$ 4,633 million, an amount similar to that recorded in the same quarter of the previous year, mainly due to the fact that the higher net income from trade operations of goods and services was offset by the higher net drawings of profits and dividends, which reached a quarterly record since the MULC came into force.

Collections of exports of goods totaled US$ 18,942 million, which implied a year-on-year increase of 23%, highlighting the collections of the export sector of oilseeds, oils and cereals for US$ 8,896 million (showing a year-on-year increase of 29%), a level that constituted a quarterly historical maximum. Likewise, payments for imports of goods reached US$ 11,399 million, registering a year-on-year increase of 29%.

The foreign exchange capital and financial account resulted in a deficit of US$ 2,528 million, an amount similar to that observed in the first quarter of 2010, which implied a lower net outflow of about US$ 2,800 million compared to the same quarter of the previous year, basically due to the lower net demand for the formation of foreign assets of the non-financial private sector.

The net demand for freely available foreign assets by residents registered a decrease of around 30% compared to the first quarter of the year. This variation is accentuated if the year-on-year comparison is made, both at the quarterly level and the accumulated for the year, with falls in the order of 50% and 40%, respectively.