UPDATE 1-Argentina July trade surplus drops 40 pct from year earlier

Wed Aug 21, 2013 4:16pm EDT

BUENOS AIRES Aug 21 (Reuters) - Argentina's trade surplus shrank by 40 percent in July from a year earlier as surging fuel and auto imports increased pressure on the government's system of currency controls.

July's trade surplus fell to $770 million from $1.277 billion a year earlier, the government statistics institute said on Wednesday. The surplus fell short of the median forecast in a Reuters poll for a surplus of $1.1 billion.

Imports rose 11 percent from a year earlier, boosted by shipments of buses from Brazil, trains from China and diesel oil from Russia and the United States. Exports edged up just 2 percent due to plunging oil and gas exports and stagnant agricultural output.

The trade surplus for the first seven months of the year shrank by 28 percent from the same period of 2012. That is bad news for the government, which relies on the surplus to boost dollar supplies on the tightly controlled currency market.

The government repays debts to private creditors using the central bank's foreign currency reserves. The country has been effectively shut out of global credit markets since its massive 2002 sovereign debt default.

Argentina's current account, the country's broadest measure of foreign transactions including trade, profit remittances, interest payments and other items, started the year with its deepest quarterly deficit since early 2001.

The Argentine peso weakened 0.8 percent on the parallel market to 9.00 per dollar on Wednesday, flirting with a three-month weakpoint. The official exchange rate weakened 0.1 percent to 5.60 per dollar, part of a policy of gradual peso depreciation that has diverged increasingly from the informal market.

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