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 2012.

Main aspects

The operations of entities authorized to operate in foreign exchange with their clients in the Single and Free Exchange Market (MULC) resulted in a surplus of US$ 30 million in the third quarter of 2012. With this result, the accumulated surplus in the first nine months of the year totaled about US$ 7,600 million as a result of gross revenues of about US$ 87,600 million and gross expenditures of about US$ 80,000 million, compared to a surplus of about US$ 1,000 million recorded in the same period of the previous year.

These results reflect the effects of the different regulations adopted since the end of October last year. In this context, at the beginning of July of this year, residents’ access to the MULC was limited for their purchases in freely available foreign currency, regardless of the fiscal controls established in October 2011. This measure complemented the regulations adopted with respect to a series of service concepts for transactions between related parties and payments to tax havens, customs measures applied to purchases of goods abroad, and the establishment of a follow-up of payments and expenses abroad.

The result of the MULC during the third quarter of the year meant a clear improvement over the deficit of US$ 3,311 million recorded in the same period of the previous year, basically reflecting the effects of the rules applied regarding the possibility of access by residents for the acquisition of freely available foreign currency.

The surplus of net transfers for goods and income from direct investments by non-residents constituted the main sources of funds in the foreign exchange market during the third quarter of the year. On the expenditure side, net payments for services were highlighted due to higher tourism and travel expenses and the net cancellation of local loans from financial institutions, consistent with the process of pesification of foreign trade financing.

Within the framework of the policy of managed floating of the exchange rate and prudential accumulation of international reserves, the Central Bank made net purchases in the foreign exchange market for US$ 575 million in the quarter, absorbing the surplus of the MULC and, mainly, the net sales of holdings of the entities authorized to operate in foreign exchange. Likewise, the rise during the quarter in the international price of gold (one of the assets in which international reserves are invested) largely explained the increase in the return on reserves by US$ 404 million.

On the side of the applications of reserves, the net payments of capital services and interest on debt in foreign currency of the public sector and BCRA stood out. As a result, the BCRA’s international reserves decreased by US$ 1,337 million in the quarter, totaling a stock of US$ 45,010 million as of September 30, 2012, a level that represents about 65% of the public external debt.

The attention of maturities in foreign currency of the National Government with international organizations and private holders with an impact on international reserves totaled about US$ 5,200 million in the accumulated of the year. These operations represented payments of about US$ 9,500 million in 2011 and US$ 6,400 million in 2010. In total, for the period 2010-September 2012, international reserves of about US$ 21,100 million have been used for the cancellation of the National Government’s debt with the private sector and international organizations, which added to the payment to the IMF at the beginning of 2006, amount to about US$ 30,600 million.

Collections of exports of goods totaled US$ 20,222 million, showing a fall of 5% compared to the value of the third quarter of the previous year. The oilseeds and cereals sector had revenues of about US$ 8,300 million (a year-on-year drop of 10% with a decrease in exportable balances due to the fall in domestic production as a result of the drought), while the rest of the sectors registered liquidations of US$ 11,884 million, with a year-on-year decrease of 1%, mainly explained by the fall in exports of the automotive sector and processed foods.

On the other hand, payments for imports of goods through the MULC totaled US$ 18,118 million, showing a fall of 2% compared to the historical maximum of the same quarter of 2011. The different companies linked to the energy sector registered import payments of US$ 3,667 million. During the period, greater cancellations associated with imports made in previous periods were observed.

The foreign exchange capital and financial account was in deficit by US$ 1,426 million, which implied an improvement in the negative balance of approximately US$ 2,300 million compared to the deficit of the same quarter of 2011. This improvement basically reflected the effect of the suspension of access to the MULC for the purchase of freely available foreign assets by residents, which in year-on-year terms implied a difference of about US$ 8,400 million, and was largely offset by the reversal of the result of the financial account of the public sector and the BCRA.