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 2006.

In the third quarter of 2006, the operations of authorized entities with their clients in the Single and Free Exchange Market (MULC) showed a surplus of US$ 2,972 million, basically explained by the usual surplus for goods, which reached US$ 3,064 million in the period. With this result, seventeen consecutive quarters have been accumulated with positive results in operations with customers of the entities authorized in the MULC.

The total volume traded in the foreign exchange market reached approximately US$ 53,600 million, which implied a slight decrease of 0.6% (US$ 346 million) compared to the same period in 2005.

In the quarter, the BCRA made net purchases of foreign currency in the foreign exchange market for the equivalent of US$ 3,415 million, absorbing the surplus from foreign exchange operations with customers and the decrease in the General Exchange Position (PGC) of financial institutions. The BCRA’s net purchases were similar to those made in the same period of the previous year (about US$ 3,350 million), with no presence of the National Treasury as a demander of foreign currency in the MULC.

The Central Bank’s purchases of foreign currency in the MULC continued to be the main source of recovery of international reserves, which increased by US$ 2,558 million in the quarter and by around US$ 9,500 million since the date on which the advance payment of the total debt with the International Monetary Fund was made. The level reached in international reserves at the end of September was similar to the level prior to the payment to the IMF.

Contrary to what was observed in the previous decade, when increases in international reserves were accompanied by net income from the capital and financial account of the public sector and the BCRA, in 2006, as in the previous three years, the recovery of the BCRA’s international reserves continues to be recorded in the context of a net deleveraging in foreign currency of the public sector and the BCRA. the absorption of the external surplus -basically originated by the trade surplus-, being the main source of the increase in them.

The current account of the exchange balance showed a surplus of US$ 2,280 million, which implied an increase of approximately US$ 300 million (15%) compared to the surplus exhibited in the same quarter of the previous year (US$ 1,981 million). The cumulative current account surplus of the last four quarters represented 4.8% of GDP.

Collections of exports of goods totaled US$ 10,590 million, growing 15% year-on-year, while a new quarterly record of payments for imports of goods was registered, totaling US$ 7,526 million, with a year-on-year growth of 16%.

On the other hand, the operations of the foreign exchange capital and financial account resulted in a net income of US$ 248 million, falling by just over US$ 300 million in relation to the surplus of US$ 579 million in the same quarter of 2005. The balance of the account surplus was similar to that recorded by non-financial private sector operations, which basically reflected net inflows from non-resident direct investments and financial loans, partly offset by net demand for external assets from the sector.