US$ outflows due to tourism doubled in 2013
Trips abroad cost Central Bank US$10.3 billion last year and energy imports, $12.4BThe Central Bank yesterday released its annual report on foreign currency expentiture, revealing precisely what contributed to the 30-percent plunge in its reserves and highlighting Argentines’ overseas holidays in particular as costing the monetary authority almost as much in foreign currency as energy imports.
The outflow of dollars for tourism purposes reached US$10.3 billion last year, almost double that of 2012, while the outflow for energy imports was US$12.412 billion, 16 percent higher than the previous year, leading to the 30-percent drop in the Central Bank’s reserves last year, the report outlined.
Operations in the exchange market ended the year with a US$8.497 billion deficit, after having reached a surplus of US$8.25 billion in 2012. The changing trend can be explained by a drop in cash brought in by grain, oil and mining exporters and by increasing imports in the energy and vehicle industries.
Central Bank reserves dropped US$12.7 billion last year, the highest since the financial crisis of 2001. As fuel and gas production dropped in 2012, the government had to inject more funds into importing energy in order to supply local demand. Energy imports rose 23 percent in 2013 from 2012, closing at US$11.415 billion.
“Argentina’s energy sector relies on gas and fuel and since the production of both has been dropping the government was forced to increase imports in 2013. This year we’ll see higher energy imports,” Gerardo Rabinovich, Argentine Energy Institute (IAE) vice-president, told the Herald. “The government has to establish a clear profile for the country’s energy matrix. Independent of what happens in the 2015 elections, energy imports will continue growing for a long time to come.”
At the same time, the report highlight overseas travel by Argentines as a cause for dwindling reserves, even with foreign currency limitations and the refundable 35-percent surcharge on foreign currency exchange and credit card purchases in foreign currencies. The number of Argentines travelling abroad increased by 6.2 percent to 2.582 million in 2012 but spending remained flat at US$3.185 billion.
“The higher demand for dollars for tourism purposes responds to the growing number of people travelling abroad and to a change in the Central Bank’s procedures,” Nicolás Zeolla, economist and member of the Centre of Economic and Social Studies of Scalabrini Ortiz (CESO), told the Herald. “In its 2013 report, the Central Bank also reviewed credit card expenses, not only cash for tourism.”
Extra dollars were also required in 2013 for vehicle industry imports of up to US$19.579 billion, up 13 percent from 2012. The chemical, plastic and rubber industries registered imports of US$10.485 billion (eight percent higher), while the machinery and equipment sector registered imports of US$7.39 million (14 percent higher). Seven of the 10 biggest importing firms in 2013 were related to the vehicle industry, while the other three were part of the energy sector.
“Energy imports grew significantly last year due to the increased domestic demand for energy, which was not matched by increased supply,” Ariel Setton, an economist from Plan Fenix, told the Herald. “This happened even with YPF’s increasing production, which actually only grew in the last few months of the year.”
Declining agricultural exports
The Central Bank reported that grain exporters brought in US$26.979 billion last year, 13 percent less than 2012 even with the record harvest of 106 million tons and stronger grain prices. There was a drop in exports of wheat, corn, oils and biodiesel while exports of soy and subproducts of grains grew.
“Grain exporters’ decision not to sell their crops had a strong impact in the international reserves of the Central Bank,” Setton said. “Nevertheless, that money has to be brought in sooner or later, so we should see an impact this year — unless exporters sell their crops in the illegal market.”
Government officials had largely blamed farmers for the persistent fall in reserves and accused them of hoarding grain to speculated about the devaluation — in other words, holding out for greater profit. Government officials promised to maintain the dollar at eight pesos in order to encourage farmers into selling their crops.
As a consequence, farmers agreed to sell up to US$2 billion in February using a higher dollar exchange rate. That figure was almost reached with US$1.9 billion brought in last month, accumulating in US$2.96 billion in the first two months of the year, a 28-percent increase compared to the same period last year.
Even with last year’s deficit in the exchange market, economists anticipate a better scenario this year and an end to the fall in Central Bank reserves.
“The effects of the devaluation will be seen in the next Central Bank report. The slower growth of the economy will have an impact on the vehicle industry, which will import less, and, at the same time, grain exporters will sell more of their crops,” Zeolla said. “The reserves scenario will be substantially different.”