Banking news

1.A.       Obligation to make a mandatory deposit equal to 30% of the amount of foreign currency transferred into Argentina

Since Decree No 616/2005 was enacted (June, 2005), and according to the rules of Communication “A” 4,359 (enacted in exercise of the delegation established in section 6 of said decree), Argentine residents who incur indebtedness with a non-Argentine resident must make a compulsory deposit which does not accrue interest in U.S. dollars equal to 30% of the total amount of foreign currency transferred into Argentina (“Mandatory Deposit”). The Mandatory Deposit is non-transferable, and cannot be used as collateral for any credit transaction. The making of the Mandatory Deposit is an essential condition for the funds to be credited.

1.B.       Exemptions to transactions subject to mandatory deposit when financial indebtedness is applied to investments in non-financial assets

Communication “A” 4,762 lists a series of external financings which are exempt from the Mandatory Deposit.

For the exemption to apply, foreign indebtedness must be:

a)    applied to investment in non-financial assets;

b)    agreed and repaid within an average period of at least two years;

c)    to acquire goods and rights listed in section 1 of the Communication (fixed assets).  

1.C.       Purchases of goods and services to be registered as fixed assets are also exempted

Communication “A” 4,804 includes within the Communication “A” 4,762 exemptions the purchases of goods and services to be accounted for as inventory.

On the other hand, Communication “A” 4,804 expressly rules that the exemptions do not include foreign indebtedness to purchase financial assets, in which case the Mandatory Deposit is necessary.   

This provision significantly widens the exemption for acquisition of assets, formerly restricted to fixed assets.

2.A.       Amendment of the rules governing derivatives transactions

Communication “A” 4,805 restates Communications “A” 4,285, “A” 4,440 and “A” 4,743. At the same time, the number of transactions which are not subject to the Mandatory Deposit established in section 6 of Communication “A” 4,359 is enlarged.

2.B.       Derivative transactions agreed and executed in Argentina

The general regime provides that local derivative transactions are defined as those:

a)    subject to Argentine law;

b)    executed and to be settled in Argentina;

c)    which do not provide for present future payments to be made abroad;   and

c)    no distinctions are made between Argentine residents and non residents.

Non-Argentine residents transferring funds to Argentina through the foreign Exchange market to fulfill derivative agreements are subject to the Mandatory Deposit.     

2.C.       Cross-border derivative transactions

Communication “A” 4,805 enlarges the number of cross-border derivative transactions which are not subject to BCRA’s prior approval for the payment of premiums, setting up of guarantees or margins and settlements. The modified list of exempted transactions is as follows:

a)   In relation to foreign currency hedge agreements, Communication 4,805:

(i)           makes it clear that the exemption now includes all hedges of positions in gold in coins or bars; and

(ii)           includes transactions executed by importers for outstanding payments for pending shipments of Argentine imports of goods, under certain conditions. Formerly, the regulation referred to completed shipments exclusively.

b)    Regarding hedges of interest rates, Communication 4,805 establishes that it cannot hedge risks exceeding the foreign liabilities registered by the debtors at the interest rates which risk they are hedging against during the time the hedge is enforceable.

c)    Communication “A” 4,805 clarifies that foreign indebtedness under the scheme of transfers of liabilities with securities includes transactions with loans guaranteed by the Argentine Republic, and that must be set up and sustained for a term at least equal to the legal minimum applicable at the time of the agreement.

d)    As regards local financial entities’ transactions with foreign entities, as a counterpart of the contracts sold to local clients, the rules incorporated by Communication “A” 4743 remain unchanged.

e)    Communication “A” 4,805 clarifies that the remaining transactions require BCRA’s prior approval, even if the transactions do not include a future transfer to the local foreign exchange market.

2.D.       New exemptions to Mandatory Deposit for derivative transactions

The repealed Communication “A” 4,440 exempted from the Mandatory Deposit only the transactions described in sections 2.1.1 to 2.1.4 of Communication “A” 4285:

(i)            the transactions executed by the financial market due to the acquisition of options meant to hedge term deposits at variable rates of Argentine financial entities;

(ii)           hedges of prices of commodities in connection with their own external trades; and

(iii)          hedges of foreign currency of Argentine exporters to cover risks. As a consequence, the remaining transactions —such as Repos— were excluded (according to Communication “C” 42.803).

On the other hand, Communication “A” 4,805 applies the exemption to the Mandatory Deposit established in Communication “A” 4,359, including all cross-border derivative transactions which will not be subject to BCRA‘s prior approval requirement.