Some Argentines still save in dollars

After almost five years of banking curbs with subsequent default, pesification and mandatory restrictions on fixed-term deposit withdrawals from banks, Argentines keep on saving in dollars, despite this is not a good financial alternative. By the end of 2007, the American currency will settle at ARG$3.20, that's to say, only 2.5 per cent of rise. If dollars are kept in banks (increasing trend), only 1 per cent annual is paid. This coexists with the classical saving in "mattress" and in safe-deposit boxes, though in the latter there's an annual average ARG$200 cost, depending on the entity involved. In only three months, $409 millions were bought.

Argentine savers increased dollar purchase in banks and exchange agencies during the third quarter. $409 millions were involved altogether, the highest figure posted since 2004. Argentine Central Bank officials stated that this phenomenon was not a "capital flight" growth; rather, they claimed that foreign currencies remained mainly in the country, for example, increasing deposits in foreign currency, which are getting closer to $5 billions, only taking into account the private sector.

During the same period of 2005, investors had made a net $435-million sale. This was immediately carried out after debt swap, when many individuals opted for settling positions in foreign currency and moving to Argentine pesos, for example, so as to take advantage of boom of CER( Benchmark Stabilization Coefficient)-adjusted bonds.

According to the July-September 2006 Foreign Exchange Balance Report revealed by Argentine Central Bank yesterday, 44 per cent of bill purchase and sale is done for less than $10,000. 2.86 millions of transactions were posted altogether. And, there were 48,100 transactions for a volume ranging between $10,000 and $50,000. Only a portion of dollars goes to the financial system. There's also an amount which flights to foreign lands, which is used for tourism or it is amassed in safe-deposit boxes.

It is worth mentioning that, in addition to bill purchase growth, placements in foreign currency in banks also rise. Storing bills in safe-deposit boxes as a means of saving loses ground in this sense, a very common practice after 2001-2002 crisis.

Anniversary

When more than a month is left to reach the 5^th anniversary of banking curbs (afterwards ending in pesification), deposits in dollars from private sector sum 4,87 billions, representing a 39.5-per cent increase with respect to December level. This increase averages $100 millions monthly, though it climbed $323 millions in August. Such leap stemmed from payment of partial BODEN 2012 capital amortization (more than $2 billions), since a portion went to the financial system.

Keeping a deposit in dollars does not look very appealing nowadays. Banks pay rates ranging between 1 and 1.5 per cent annual, when this kind of placement in foreign countries has an annual 4.5-per cent floor. The only possible bet today may be a leap in dollar quote against peso. However, there's every indication that inflation-adjusted products will beat dollar development.

Further information from third-quarter foreign exchange balance report, which Central Bank released yesterday, is provided below:

The Central Bank of Argentina made net foreign currency purchases in foreign exchange market for $3.41 billions, absorbing surplus of foreign exchange transactions with clients and fall in General Foreign Exchange Position of financial entities.

During the first nine months of the year, almost all foreign currency purchases of public sector were made by Central Bank. The entity managed by Martín Redrado acquired 9.72 billions, while Finance and Treasury Secretariat only got $480 millions.

Central Bank purchases were the main source of reserve recovery, which have increased by $2.55 billions in the quarter and $9.5 billions since full payment of IMF debt until the end of September.

Surplus of Sole and Free-Exchange Market (MULC, in its Spanish acronym), only taking into account private sector transactions, posted a $1.3-billion decrease with respect to the amount observed during the third quarter of 2005.

Transactions between authorized entities and their clients summed around $36.5 billions. The first ten entities held 67 per cent of that amount.

Foreign private banking clearly heads transactions in foreign exchange market. It represented 62 per cent of volume traded with clients; national private banking, 27 per cent; and public banking only 8 per cent. Exchange agencies got the remaining 3 per cent.