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 2015.

Main aspects

The operations arranged by the entities authorized to operate in foreign exchange with their customers in the Single and Free Exchange Market (MULC) resulted in a deficit of US$ 6,848 million in the fourth quarter of 2015, implying a reversal of about US$ 7,100 million compared to the surplus observed in the same quarter of 2014 that had totaled US$ 252 million.

In this regard, it should be noted that the foreign exchange market deficit in October was US$ 2,758 million, that of November was US$ 2,364 million and in the first 10 working days of December a negative result of about US$ 1,800 million was accumulated.

Following the change of authorities on December 10, 2015, the Central Bank adopted a series of monetary and exchange rate measures4. With specific regard to foreign exchange market regulations, the rules were adjusted to the new definitions of exchange rate policy aimed at greater freedom in the movement of capital.

In this regard, individuals and legal entities were allowed to purchase foreign currency and other foreign assets for up to US$ 2 million per month, eliminating the requirement of registration and validation in the Foreign Exchange Operations Consultation Program of the Federal Administration of Public Revenues (AFIP); it was provided that any new inflow of foreign funds will have the right to free exit and that financial debts with foreign countries are not subject to the obligation of entry or settlement in the foreign exchange market (although the liquidation of funds is maintained as a condition for access to the market for the service of capital and interest services). and financial institutions were enabled to carry out exchanges and arbitrages with their customers with debit or credit to local accounts in foreign currency under certain conditions.

These regulations were accompanied by the modifications to Decree 616/05 ordered by the Ministry of Finance and Public Finance, which reduced the requirement of permanence from 365 days to 120 days applicable to certain foreign income from portfolio investments and financial loans and also reduced to 0% the non-interest-bearing deposit for a one-year term that had been established in 2005.

Likewise, the flow of current operations was released and a monthly scheme was established to meet pending payments of imports of goods and services prior to 17.12.15 to be fully released in June 2016. As an alternative to this scheme, the Treasury issued a bond for about US$ 1,050 million that will pay principal as of May of this year.

It should be noted that the measures taken by this Central Bank were accompanied by a set of provisions of the new National Administration with an impact on the variables of the foreign exchange market, highlighting the reduction or elimination, as appropriate, of export duties on oilseeds and cereals and their by-products, and products of the manufacturing industry. and the reduction of internal taxes for high-end vehicles.

Thus, in the last 10 working days of 2015, the operations of the entities with customers in the MULC were practically balanced, highlighting the reversal in the result for goods after four months of deficit in the account, mainly due to the higher income from export collections in the oilseeds and cereals sector. In this context, the Central Bank let the market establish the parity at which foreign currency purchase and sale transactions were operated in the country.

In the quarter as a whole, the Central Bank made net sales in the foreign exchange market for US$ 6,325 million, which together with payments for foreign trade operations channeled through the Local Currency Payment System (SML) in force with Brazil and ALADI for US$ 127 million, meant a total of about US$ 6,450 million.

On the other hand, cancellations of capital and interest services on foreign currency debt for obligations with international organizations and with holders of public sector securities totaled US$ 7,420 million in the quarter. Among the maturities of public securities services, the payment of the principal and interest of the BODEN 2015 for the month of October for some US$ 5,900 million stood out, of which 55% corresponded to drafts to holders abroad and the remainder were paid in local accounts, which implied a retention of about 50% in international reserves as the funds were deposited.

Among the main sources of increase in international reserves, the increase in current accounts in foreign currency of entities in the BCRA stood out, mainly as a result of the increase in private deposits in foreign currency of around US$ 2,000 million, both due to the retention of funds from local holders of Boden 2015 and the increase in the last two weeks of December. encouraged by the new situation of the foreign exchange market, the increase in the rates received and the seasonal effect of the closure of the Personal Assets Tax, bringing the stock to the highest level since mid-2012.

The operations of the current account of the foreign exchange balance resulted in a deficit of US$ 5,438 million, showing an increase in net outflow of about US$ 4,500 million compared to the same period of the previous year, mainly explained by the lower net income from goods.

Net transfers for goods registered a deficit of US$ 872 million, which implied a fall of about US$ 3,000 million compared to the result recorded in the same quarter of 2014. Revenues from collections of exports of goods totaled US$ 11,599 million, which implied a decrease of 27% in year-on-year terms, while import payments amounted to US$ 12,471 million, experiencing a year-on-year decrease of 10%, placing it among the lowest values since the second quarter of 2010.

The foreign exchange capital and financial account was in deficit by US$ 1,880 million, showing a reversal of about US$ 6,600 million in relation to the surplus of US$ 4,683 million in the fourth quarter of 2014.

As a result, the BCRA’s gross international reserves reached a stock of US$ 25,563 million at the end of December 2015, decreasing US$ 7,694 million in the fourth quarter of the year.