The balance of payment accounts track the progress of a country's import and export transactions as well as how those transactions are financed. These accounts consist of two basic parts: the current account and the capital account. The current account measures the net exports of goods and services, where net exports constitutes the total revenues from exports less the total cost of all imports. The capital account measures the value of  assets sold to foreigners less the value of assets purchased abroad. Such assets include direct foreign investment, loans and equity transactions.

This analysis concerns only the period from 1991, when the Convertibility Plan went into effect, to the present. Throughout this period, the exchange rate was fixed to one Argentine Peso for one US dollar.

Under a fixed exchange rate, the central bank uses its foreign reserves to support the desired rate; therefore, the value of the capital account is equal to the value of the current account with a sign change plus the change in foreign reserves. 

For a capital inflow under fixed exchange rates, foreign currency is traded for local currency at the central bank. This increases the foreign reserves, which ultimately finances the purchase of imports from abroad. The net capital inflow is represented by a capital account surplus equivalent in magnitude to the current account deficit plus the increase in foreign reserves.

For a capital outflow under fixed exchange rates, local currency is traded for foreign currency at the central bank. If the current account does not have a surplus large enough to offset the capital outflow, the central bank will lose reserves. The net capital outflow is represented by a capital account deficit equivalent in magnitude to the current account surplus increased by the amount of reserves lost.

The figure below shows the trends of the capital and current accounts from 1992 to 1998.

As a result of the debt crisis that plagued Latin America in the 1980s, Argentina was in an economic recession for much of the decade. Already in 1982, when Mexico's default on foreign loans precipitated the crisis, Argentina's capital account surplus, representing capital inflows, fell to less than $2,500 million. Foreign reserves decreased, contributing to a reduction in imports. As a result, the current account deficit also dropped below $2,500 million. Brady Plan negotiations with Latin American countries, beginning in 1989 and continuing well into the 1990s, largely resolved the debt crisis.

In 1989, the Argentine government, under President Menem, initiated a major restructuring of its economy . The reforms included the liberalization of trade, privatization of state industries, price stabilization, and new regulatory policies. The 1991 Convertibility Law, which pegged the Peso to the US Dollar at an exchange rate of one Peso per Dollar, was instrumental in bringing Argentina's historically high levels of inflation down to one of the lowest rates in the world today (under 1%). Collectively these measures have restored investor confidence. As a result, capital inflows have increased dramatically over the past few years, reaching levels the country had not experienced for the past two decades.

Beginning in August 1998, the Russian debt crisis caused a sudden increase in sovereign risk for developing countries. This trend is shown in the graph below. As a result, it is more difficult for Argentina to finance externally through the use of debt instruments. Despite the ongoing international crises, the net inflows of capital remain high. While the number of bond issues declined to negligible levels following the crisis, FDI flows remained strong, showing that these long-term investments from abroad are relatively independent of the present deterioration in international financing.  Indeed, FDI flows were equivalent to 50% of the current account deficit during the period Q1-Q3, 1998.  Research suggests such a high percentage is an indication of exchange rate stability. A significant portion of the $1,877 million in FDI for Q3 was due to the government's privatization efforts, which resulted in the transfer of ownership in transportation and communications companies as well as utilities from the state to shareholders.

In 1997, the capital account was at $12,397 million. For the first three quarters of 1998,  the capital account surplus amounted to $10,468 million compared to $6,583 million to the same period for 1997, an increase of 59%.  The growth rate of the capital account is likely to slow down early next year.
 

For the past few years, the current account deficit has been among the largest in Latin America. By the end of 1997, the deficit had reached $9,335 million. For the first three quarters of 1998, the current account deficit  was at $8,707 million , which was $5,911 million for the same period in 1997, an increase of 47%. Due to the financial crises affecting Southeast Asia, Japan, Russia, and Brazil, international prices for commodities decreased significantly in 1998. With a lower price level and a smaller increase in volume than for previous years, exports in 1998 showed an overall decrease in value. For example, in Q3, 1998, exports of goods declined 4.4% in value compared to the same quarter of the preceding year. At the same time, the lower price level caused the total value of imports rise, though the rate of this growth is decreasing in line with the slow down of economic growth. Imports of goods in Q3, 1998 increased 2.9% in value relative to the same quarter in 1997. The decrease in exports relative to the increase in imports explains the why the current account deficit continues to grow. As shown in the graph below,  the rate of growth in imports has been decreasing, while the rate of decline in exports has been increasing, indicating that overall trade in goods is slowing down.
 

The "Change in Reserves" for a given year is essentially the difference in magnitude between the capital account and current account curves. This measure shows that $672 million in foreign exchange accumulated in 1997. The accumulation in reserves during Q1-Q3, 1998, shows an increase of $1,761 million for Q1-Q3 1998 compared to the much smaller gain in $672 million for Q1-Q3, 1997. This difference is largely the result of meeting the higher liquidity requirements that accompanied increased yields on government securities. Once the fourth quarter is taken into account, it is likely that the rate of reserve accumulation will decrease slightly (as shown in the graph).