balance of payments


balance of payments
   Spain's balance of payments shows the usual cycle of oscillations between surplus years and deficit years. From the early 1960s to the early 1970s there was generally a surplus. But Spain's dependence on imported oil changed the situation drastically, following OPEC's quadrupling of the commodity price in 1973. Corrective action was not taken promptly by the Spanish authorities, and the ensuing current account deficit was not corrected until the peseta was devalued in 1977. The immediate improvement was short-lived, as OPEC imposed another price increase. The higher import bill at a time of exporting difficulties because of competition from newly industrialized countries caused deficits between 1980 and 1983, but the improving international situation and the increasing numbers of incoming tourists brought the account back into surplus between 1984 and 1987. Since then, trade relations and policy have been governed by Spain's position in the EU. Although Spain has exported much more to the EU since it joined, its import bill, encouraged by the liberalization of trade, has grown even more. Furthermore, a strong peseta policy (required by the ERM and the need to curb inflation), favoured importers over exporters. The result was a continuing current account deficit from 1988 onwards, which peaked in 1992. The turnaround did not come until 1995 after four realignments of the currency from 1992 to 1994.
   Spain's deficit in merchandise trade can be made up by the surplus in services, essentially tourism. At between one-fifth and one-sixth of total income from visible and invisible exports, tourism is a major component of Spain's balance of payments: a buoyant tourist sector in 1995 and 1996 helped to bring the account back into the black. When earnings from tourism are insufficient to offset the deficit in visible trade, the gap has to be financed from the country's foreign currency reserves, from loans, or via inward foreign investment. The scale of foreign investment means that the balance on capital account consistently shows net inflows, so that despite the repeated current account deficits from 1988 to 1994 Spain's foreign currency reserves were on a rising trend. The only hiccup occurred in 1992 to 1993, when the turmoil in currency markets caused severe ERM instability of which the peseta was a major victim, the loss of confidence and three successive devaluations leading to serious capital outflows and a decline in reserves. Nevertheless by 1996 the upward trend in reserves had been reestablished. With an import— export ratio in the region of 75 to 80 percent Spain is very unlikely in the foreseeable future to be able to finance its imports solely from its merchandise exports. As long as tourism remains a major earner, however, the balance of payments should never slip too damagingly into the red.
   Further reading
   - Organization for Economic Co-operation and Development (yearly or biennial) OECD Economic Surveys: Spain, Paris: OECD Secretariat (a standard survey that covers all major aspects of the economy including the balance of payments).
   C. A. LONGHURST

Encyclopedia of contemporary Spanish culture. 2013.

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