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 fourth quarter of 2008.

Foreign exchange operations and the exchange balance for the fourth quarter of 2008

In the context of the strong volatility of international markets, in October there was an increase in demand for banknotes and foreign currency in US dollars in the Single and Free Exchange Market (MULC) due to the change in the private sector’s portfolio, in line with what has been observed in the main foreign markets. In that month, basically as a reflection of this behavior, there was a deficit in operations with customers of around US$ 3,600 million.

To deal with this situation, the Central Bank on the one hand acted decisively to ensure the stability of the exchange and money markets, and on the other, it created different instruments to provide liquidity to the financial market and reaffirm the stability and soundness of the system.

These policies were successful in achieving the reversal of market expectations, registering a sharp decrease in the demand for foreign assets for portfolio changes in the last two months of the quarter, in which the result of the MULC showed a surplus of about US$ 1,300 million, reducing the deficit of the quarter to US$ 2,300 million.

The current account of the exchange balance of the last quarter of the year reached a surplus of US$ 2,531 million, with a year-on-year reduction of around US$ 500 million. This result reflected the increase in drawings for profits and dividends, which totaled a quarterly high, and in net interest payments, which exceeded the increase experienced by net transfers for goods. The latter showed a record positive balance for the last quarter of the year of almost US$ 5,000 million.

Collections of exports of goods totaled US$ 16,334 million, showing a year-on-year growth of 12%. Likewise, payments for imports of goods reached US$ 11,338 million, showing a significant reduction in the year-on-year growth rate, going from 28% in the third quarter to 7% in the last three months of the year.

For its part, the operations of the capital and financial exchange account showed a new decrease in the deficit compared to the previous quarter, yielding a total of US$ 3,378 million.

Net disbursements of financial loans were recorded again through the MULC, accumulating thirteen consecutive quarters with net inflows of funds to the private sector. Likewise, net income from direct investments by non-residents in the non-financial private sector continued, totaling US$ 706 million in the period.

Foreign exchange operations and the exchange balance in 2008

In the context of the global financial crisis, the operations in the MULC of the authorized entities with their clients ended 2008 with a deficit of about US$ 2,400 million, excluding the purchases made by the Ministry of Finance in the first part of the year for US$ 1,566 million. This result marks the change in the foreign exchange market with respect to the surplus of about US$ 11,200 million recorded in 2007.

The participation of the BCRA in the foreign exchange market, both spot and futures, in the securities market, plus various measures such as the creation of a window to provide liquidity in foreign currency to financial institutions through active pass operations, and some regulatory changes aimed at increasing the supply of foreign currency in the financial system, they made it possible to ensure exchange, financial and monetary stability in times of greater global volatility.

The BCRA’s net sales of foreign currency in the local foreign exchange market totaled about US$ 870 million, an amount equivalent to only 2% of the stock of international reserves registered at the end of December 2007. In addition, some US$ 2,300 million were used for the purchase of securities with settlement in foreign currency.

Despite the volatility in the global markets, the BCRA’s international reserves closed 2008 with a stock of US$ 46,386 million, US$ 210 million more than at the end of 2007. The balance of international reserves remains at historically high levels, tripling the levels at the end of 2001 and quintupling the minimum values observed in mid-2002.

The current exchange account accumulated a surplus of US$ 15,629 million in the year, an amount practically equivalent to the deficit recorded by the capital and financial account.

The positive balance of exchange transfers for goods totaled a record amount at the annual level of US$ 20,357 million. Revenues from collections of exports of goods totaled US$ 67,962 million, showing a year-on-year increase of 27%, repeating the performance observed in 2007. In this regard, it should be noted that during the year, some 2,400 new exporters joined the foreign exchange market, continuing the trend observed in previous years.

On the other hand, within the framework of the increase in the level of local activity and, consequently, of shipments to the market, payments for imports of goods through the foreign exchange market totaled US$ 47,605 million, growing 25% year-on-year.

Profit and dividend remittances through the MULC reached US$ 3,552 million, almost doubling the level recorded in 2007.

Notwithstanding the international context and its effects on expectations reflected in the change in private portfolio, NFPS not only recorded record revenues in merchandise transactions as noted above, but also in net income from financial loans of about US$ 2,600 million, exceeding the values of 2007 and 2006 (US$ 1,639 million and US$ 1,480 million, respectively) and direct investments in the amount of US$ 3,427 million, with a year-on-year increase of 48%.