the fall and winter of 1916-17 (Argentine spring and summer), when the exchange rose to 52 (January, 1917), a premium of over 9 per cent. In the following winter exchange rose to 53 (December, 1917), a premium of 13 per cent.

Up to this point, the Argentine and Uruguayan exchanges were markedly in sympathy with each other. This correspondence was to be expected, since the two countries form, in many respects, a homogeneous trade area, buying and selling the same commodities, and financing their international transactions through the same hands. After January, 1918, however, the correspondence was lacking. Montevideo exchange ascended to 64 d. (27.9 per cent above par), while the Buenos Aires exchange, after an initial fall to 50d., remained fairly stable. This lack of correspondence of the two exchanges is ascribable mainly to the creditexchange arrangements which have been described. It will be recalled that the Argentine conventions went into effect early in 1918, the Uruguayan agreements not being completed until summer.

Throughout the course of both of these exchanges there is noticeable an annual wave movement, reaching its crest in the winter months (South American summer) and its trough in the summer months. This wave movement is due chiefly to the alternation of active and inactive seasons in the export trade. From October to May, approximately, the harvest comes to port and is shipped; there is consequently a flood of bills of exchange offered for sale by the exporters, and the rate moves upward. From May to October, the exchange market is less active.

The most important feature of the exchange movement is the marked rise, appearing first in the winter of 1916-17, and becoming still more striking in the winter

of 1917-18. This rise is to be explained by reference to the changes occurring in the balance of international payments.

For the analysis of these changes we are fortunate in having the computations of Dr. Alejandro E. Bunge, Director General of National Statistics of Argentina, and those of Señor Carlos Alfredo Tornquist, one of the most eminent bankers and financiers of Argentina.1 Dr. Bunge has computed the Argentine balance of payments for 1916, and Sr. Tornquist has computed the balance for each year since 1913.2

For the purpose of this study it will be sufficient to present the summary figures of Sr. Tornquist's balances for 1913-14 and 1916-17. Sr. Tornquist makes his computations for the Argentine "economic year," October 1 to September 30. In the following tables these balances are given in summary form. The first gives the balance for the year 1913-14, the second for the year 1916–17.3

1 Sr. Tornquist possesses the best financial and commercial library in Buenos Aires. His father, the late Sr. Ernesto Tornquist, was the intimate adviser of Presidents Pellegrini and Roca during the period following the Baring Panic (1890-91), and, with finance minister Dr. J. M. Rosa, the author of the Conversion Law of 1899.

These balances were presented to the writer during a visit to Buenos Aires in 191718, as travelling fellow from Harvard University.

The reader will note the absence of the item of freight charges from the Argentine balances. This omission is intended. Freight charges do not constitute an item in the international payments of Argentina, by reason of the method followed in recording the statistics of foreign trade. "Value of Imports" is compiled by the use of an official list of import prices (" tarifa de avaluos ") which serve as standards for the computation of custom duties. When originally drawn up this list represented the actual prices of imported commodities and thus included freight charges on imports. From lack of regular and accurate revision of the list, however, the "tarifa de avaluos" has for years past conformed very imperfectly to actual import prices, and Dr. Bunge, Director General of Statistics, has initiated the practice of correcting the import statistics compiled from this list, by reference to the actual market prices. Concerning freight charges on exports Dr. Bunge says: The prices taken (as the basis for compiling ' Value of Exports') are those of our (the Buenos Aires) market. Maritime freights, which do not come into the country because all the shipping which carries our products is foreign, are not paid by us; they do not occasion either a credit or a debit of our country toward the outside world, and ought not to figure as an item of our foreign commerce." El Intercambio Economico de la Republica Argentina en 1916, p. 13.

44

THE ARGENTINE BALANCE OF PAYMENTS, 1913-14
(Thousand gold pesos (peso

=

$.965))

404,250

114,000

518,250

392,100

177,300

569,400

-51,150

+32,600

-18,550

1. Two loans contracted by the national government, and one by the

federal capital..

$46,200,000

2. Securities issued in Europe by railroad and other companies in Argentina 34,300,000 3. Bonds sold in Europe (cedulas, paving bonds, etc.).

23,500,000

These tables indicate a reversal of the Argentine international situation between the last year prior to the war and the year ending September 30, 1917. If we leave out of account, for the moment, the item relating to changes in the gold stock of the country, we find in 1913-14 that the balance was unfavorable to Argentina by $51,150,000. It is well known that the year 1913–14 witnessed a "near-panic" in Argentina; the unfavorable balance of payments, the consequent downward pressure on exchange, and the large outflow of gold were important factors in that situation. Turning to 1916-17 we find a different situation. The balance of payments is favorable, the excess of the credit account over the debit account amounting to $49,000,000.

But both of these figures were reduced by international gold movements; and since the interruption of gold movements forms an important part in the explanation of the abnormal state of the Latin American exchanges, the figures of the balance sheets relating to this item deserve separate attention. By virtue of the normal exchange mechanism, already reviewed, an excess of debits over credits drives exchange to a discount and induces an outflow of gold; and, contrariwise, an excess of credits over debits drives exchange to a premium and induces an inflow of gold. Gold movements, therefore, constitute the balancing item, so to speak, of international payments, by means of which credits and debits, and consequently the rate of exchange, tend toward a state of equilibrium. In view of this fact one would expect from the terms of the balance of 1913-14 to find a considerable outflow of gold. Such an outflow did occur, the net reduction of the gold stock of the country in that year being $32,600,000. Subtracting this sum from the unfavorable balance of $51,600,000, we obtain a net uncovered balance of $18,550,000" against " Argentina.

In the same way, in 1916-17, one would expect, normally, a considerable inflow of gold; and such an inflow did occur, the net addition to the country's stock of gold in that year being $33,143,000. Subtracting this amount from the favorable balance of $49,100,000, we have a net uncovered balance of $15,957,000 " in favor of " Argentina. But in 1916-17 such a net inflow of gold appears at first glance surprising, since, as has been said, the nations at war had placed an embargo on the export of gold. The details of the gold movement in 1916-17 are therefore essential to an adequate understanding of the Argentine situation. Sr. Tornquist has given the figures of the gold movement by quarters; the net import in each quarter being as follows:

It is seen that virtually all of the gold entered the country in the first two periods. The falling-off in the second quarter of 1917 is striking; and in the third quarter the gold movement is negligible. The heavy imports up to April, 1917, came from New York. They came in consequence of a balance of payments becoming increasingly favorable to Argentina. They served, in part and for the time, to meet that balance, and thus prevented the rate of exchange from rising so high as it would otherwise have risen. When the United States entered the war, the flow of gold from New York dwindled (as it had already done from the other countries at war), and soon ceased. The effect is seen in the next Argentine export season, the fall and winter of 1917, when the rate of exchange went much higher than in the preceding year, and made necessary the credit-exchange arrangements.