Short-term capital continues to flow abroad economy

According to data from Central Reserve Bank (BCR), had a short-term capital outflow of USD 114 million in the first quarter of 2023.After 465 million US dollars went abroad in the last quarter of last year.

It saw its first disinvestment in the third quarter of 2022 at USD 234 million (after nine quarterly exits driven by political uncertainty).

Short-term flows (from the non-financial sector), according to the BCR, mainly include foreign deposits of non-financial corporations and household units. Short term refers to a period equal to or less than one year.

“These are flows in financial instruments like deposits or short-term mutual funds, which can be redeemed quickly without loss of capital. These are mainly natural persons, deposits abroad pay almost the same, but with less risk. Investing in debt instruments abroad will yield attractive returns”said Fernando Garcia, investment manager at Qubus Wealth Management.

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What explains the constant flow of capital?

Social protests in January would have explained the end of the first quarter of the year, which would have been more limited than in the past, he said.

Garcia noted that capital inflows may have been higher in February and especially in March, not compensating for outflows in the first month.

“The exodus is mainly due to last year’s social conflicts, which also affected the outflow of capital in the last quarter of last year. There was a strong impact on the economy in December and January, which was affected by capital flows abroad.He said.

Economist Carlos Casas agreed with this and pointed out that “very sensitive” capital remains in 2021 and much of 2022, so that remittances abroad this year have been to somewhat more speculative economic agents.

In this sense, due to the situation at the beginning of the year, investors who allocated resources in local instruments, looking for a good investment opportunity with better conditions, took them abroad in search of greater security, or because the projects they intended to deliver were postponed.

“Social and climate events have again brought a risk situation. The search for more safety and profit outside the country continues. The central bank interest rate has been increasing, while the BCR has lowered it and then suspended it, and it is creating attractive (credit) instruments in the United States.said.

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Will the outflow of capital continue this year as well?

Carlos Casas does not expect this behavior to reverse in the second quarter of the year. He argued that the risks surrounding new social upheavals had not yet subsided and that the US economy would be more willing to invest in low-risk assets.

For his part, García estimates that in the second quarter of the year, the results will shift towards the inflow of capital into the country due to the moderation of political and social risks.

He cautioned, however, that the capital flow left behind in the past two years is unlikely to return to the local economy soon.

“There were no capital outflows in February and March, and there is likely to be a small inflow in the second quarter. However, based on conversations with market players, unless the political and legal security scenario changes drastically, large flows are unlikely to return to the country.”He revealed.