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 third quarter of 2005.

Traded volumes set a new record in the MULC, totaling US$ 53,950 million in the quarter.

The BCRA’s stock of international reserves reached US$25,614 million as of September 30, 2005, which implied a recomposition of reserves of more than US$6,000 million in 2005 and about US$16,000 million since the levels observed in mid-2002.

The current account of the exchange balance registered a surplus of US$ 1,981 million, some US$ 130 million (3%) higher than the surplus observed in the same quarter of 2004 (US$ 1,849 million).

Collections of exports of goods registered the second highest level in the history of the MULC, with a total of US$ 9,209 million, growing 23% year-on-year. Payments for imports of goods reached a new high in the history of the MULC, US$ 6,464 million, an amount 29% higher than that recorded in the same period of 2004.

For the first time since the establishment of the MULC, the balance of the foreign exchange capital and financial account was positive. Net income of $579 million represents a difference of more than $1.7 billion from the deficit observed in the third quarter of 2004. This surplus was mainly due to investment income from non-residents and the net supply of foreign assets from the non-financial private sector.

The operations of authorized entities with their clients in the Single and Free Exchange Market (MULC) registered a surplus of US$ 3,285 million in the third quarter of 2005. The National Treasury’s purchases of foreign currency in the foreign exchange market totaled US$ 912 million in the quarter.

This surplus, which was recorded within the framework of the rules issued in the second quarter on the control of short-term capital inflows, reflected the interest of investors, both residents and non-residents, to position themselves in local assets in a context of sustained growth in the level of domestic activity and international liquidity.

Although the measures to control short-term capital inflows had an impact on the income from the items subject to the constitution of the non-interest-bearing deposit, their effects were partly offset by the long-term income from financial loans and direct investments and by the subscriptions of primary issuances of National Government bonds in local currency. and the fall in demand for foreign assets by the non-financial private sector.

In the year-on-year comparison, the exchange surplus more than doubled the result observed in the third quarter of 2004. If private sector operations are considered exclusively, the quarterly surplus of the MULC totaled about US$ 4,200 million, almost three times the result observed in the same period of the previous year, but 20% lower than the record observed in the second quarter of 2005.

The public sector faced net payments to international organizations and other debts in foreign currency for US$ 1,938 million.