Payment of Financial Debts with Government Bonds

Introduction

As was described in Marval News No. 4, Decree No. 1,387 of November 1, 2001 sets forth the framework of the regime for discharging financial debts with government securities (the “Regime”). Such decree has been mainly regulated and supplemented by Decrees No.1,524 of November 25, 2001 and No. 1,570 of December 1, 2001, as well as by Communications of the Central Bank of the Republic of Argentina (the “BCRA”) A 3398 of December 14, 2001 and, recently, A 3562 of April 12, 2002.

Pursuant to the Regime, among others, the debtors of the financial system with no tax debts as of September 30, 2001, may repay their debts to the financial system by delivering government bonds at their technical value, i.e., at their face value at the moment of calculation, taking into consideration the corresponding amortization and interest.

The financial institutions receiving the government bonds delivered in payment may use such securities for the exchange of debt (megacanje fase 1) also set forth by Decree No. 1,387/01, thus benefiting from a better accounting treatment.

It is further provided that the amount that may be repaid by debtors, totally or partially, is the amount owed as of November 2, 2001, plus interest to the effective date of cancellation.

Pursuant to the originally fixed term, debtors complying with all the corresponding legal requirements could join the Regime until February 28, 2002 (extended until March 31, 2002 by Communication of the BCRA A 3494 dated February 28, 2002).

Debtors eligible for the Regime are those classified by their creditors, as of August 2001, according to certain categories – as to their solvency - established by the BCRA. Debtors classified as being in situation 1, 2 and 3 can only join the Regime after obtaining the approval of the creditor entity, whereas debtors classified as being in situation 4, 5 and 6 (in certain circumstances) can unilaterally elect to join the Regime, being the creditor entity obliged to receive the government securities delivered in payment by such debtors.

It must be highlighted that the constitutionality of the obligation imposed on creditors of accepting repayment of their credits with government bonds under the Regime may be challenged.

Decree No. 469/02 for the Reorganization of the Financial System

Decree No. 469/02 for the Reorganization of the Financial System adapts the procedure set forth for the payment of financial debts with government bonds to the new rules and extends the term for debtors to join the Regime.

Given the conversion into Pesos of the obligations originally denominated in U.S. Dollars or in other foreign currencies set forth by Law No. 25,561 and Decree No. 214/02, and with the purpose of adequating the procedure for the discharge of financial debts to such rules, Decree No. 469/02 provides that the government bonds in U.S. Dollars or in other currencies delivered to repay debts to the financial system will be converted into Pesos at the rate of $ 1 (One Peso) per each US$ 1 (One U.S. Dollar) or its equivalent in other currencies, pursuant to Section 3 of Decree No. 214/02. It should be noted that there is a difference between the exchange rate of government bonds in U.S. Dollars or in other foreign currencies fixed for purposes of the Regime and the exchange rate of such bonds determined by Decree No. 471/02 (published B.O. March 13, 2002) related to public debt, which is, under certain circumstances, $ 1.40 per each US$ 1 or its equivalent in other foreign currencies, adjustable by the Reference Stabilization Ratio (Coeficiente de Estabilización de Referencia or CER) established by Decree No. 214/02. There have been several questions and comments made in connection to the different exchange rates applied under each of these two cases.

Decree No. 469/02 extends the possibility to join the Regime to certain debtors. In this respect, it provides that all debtors classified as in situation 3 as of August 2001, the situation of which has worsened due to the serious economic difficulties of the country, and which have therefore been classified as in situation 4 or worse as of December 2001, may unilaterally join the mechanism to repay their financial debts with government bonds. On the other hand, those debtors classified as in situation 1, 2 and 3 (in the case of situation 3, if they have not worsened their situation, as described above) will need the prior approval of the creditor entity to be able to join the Regime.

Finally, Decree No. 469/02 extends the term for debtors to join the Regime. A 90-day term has been provided, in accordance with the term set forth by Law No. 25,563 to proceed to the restructuring of the credits of financial institutions (please see an article on this matter in Marval News No. 4). The period to join the Regime has currently been extended till May 15, 2002 (Communication A 3562 of BCRA).

Decree No. 469/2002
REORGANIZATION OF THE FINANCIAL SYSTEM

Published Official Gazette March 12, 2002

Adjustment of the procedure to discharge debts to the financial system within the framework of Section 30, paragraph (a) and Section 39 of Decree No. 1,387/2001. Amendment of Decrees No. 1,524/2001 and 1,570/2001.

HAVING SEEN Decrees No. 1,387 of November 1, 2001, 1,524 of November 25, 2001, 1,570 of December 1, 2001, 214 of February 3, 2002, 260 of February 8, 2002 and 320 of February 15, 2002, and

CONSIDERING:

That Law No. 25,561 has declared public emergency in respect of social, economic, administrative, financial and exchange matters, delegating powers to the National Executive Power – until December 10, 2003 – to proceed to the reorganization of the financial system, the banking system and the exchange market; to revitalize the functioning of the economy and to improve the level of employment and of income distribution, emphasis being given to a program for the development of regional economies; to create conditions for a sustainable economic growth compatible with the restructuring of public debt and to set rules for the restructuring of all outstanding obligations affected by the new exchange system established by Title II of such rule;

That the National Executive Power, acting within the framework of the social, economic, administrative, financial and exchange public emergency issued Decree No. 214/02, whereby it set forth a set of provisions, all of them within the powers conferred by the Honorable Congress of the Nation;

That consistently with the changes introduced as a result of the passing of Law No. 25,561 and Decree No. 214/02, the National Executive Power proceeded to issue Decrees No. 260/02 and 320/02;

That on the other hand, Decree No. 1,387/01, in its Section 30, paragraph (a) and Section 39, provides for the possibility of debtors classified as in situation 3, 4, 5 or 6 (pursuant to the rules of the Central Bank of the Republic of Argentina) of discharging their bank debts – with full releasing effects – with government securities at their technical value;

That the applicable procedure to admit such discharge has to be adjusted, given the conversion into Pesos of the obligations originally denominated in U.S. Dollars or in other foreign currencies set forth by Law No. 25,561 and Decree No. 214/02;

That Section 6 of Decree No. 1,570/01 sets forth that debtors classified as in situation 1, 2 or 3 must obtain the prior approval of the creditor entity to perform the transactions contemplated in the above-mentioned sections of Decree 1,387/01;

That given the seriousness of the economic situation our country is undergoing, it is reasonable to expect that the situation of debtors classified as in situation 3 as of August 2001 should have worsened;

That having been set forth in Section 15 of Law No. 25,563 a term of NINETY (90) days counted as from promulgation of such law to proceed to the rescheduling of credits of financial institutions with debtors, it would be consistent to fix the same term for debtors of financial institutions and financial trusts included in Section 30, paragraph (a) and Section 39 of Decree No. 1,387/01 to totally or partially repay their debts;

That the General Direction of Legal Affairs of the Ministry of Economy has participated in this matter as appropriate;

That this Decree is issued pursuant to the powers granted by Section 99, Sub-sections 1, 2 and 3 of the National Constitution.

NOW, THEREFORE,
THE PRESIDENT OF THE REPUBLIC OF ARGENTINA, WITH THE GENERAL AGREEMENT OF MINISTRIES DECREES AS FOLLOWS:

Section 1 – Government securities in U.S. Dollars or in other foreign currencies delivered in payment of debts to the financial system, as provided in Section 30, paragraph (a) and Section 39 of Decree No. 1,387/01 of November 1, 2001 and in Communication “A” 3398 of December 14, 2001 of the Central Bank of the Republic of Argentina will be converted into Pesos at the conversion value set forth in Section 3 of Decree No. 214/02.

Section 2 — Section 18 of Decree No. 1,524/01 will be replaced by the following:

“SECTION 18: For purposes of Section 30, paragraph (a) and Section 39 of Decree No. 1,387/01, as amended, debts to financial institutions and financial trusts subject to the supervision of the Central Bank of the Republic of Argentina - pursuant to the classification included in the Financial System’s Debtors Base of such institution corresponding to the month of August 2001 - may be discharged, including principal and interest to the date of the effective payment, if same are outstanding as of the date of publication of such Decree in the Official Gazette.

To be eligible for this mechanism, debtors of national banks classified as in situation 3 as of the month of August 2001 shall be classified as in situation 4 or worse as of the month of December 2001, hereby inviting provincial governments and the government of the City of Buenos Aires to adhere to this rule, issuing regulations on this matter for the banks under their jurisdiction.”

Section 3 — Section 6 of Decree No. 1,570/01 will be replaced by the following:

“SECTION 6: Debtors that are in situation 1 and 2 pursuant to the rules of the Central Bank of the Republic of Argentina are eligible for the discharge transactions contemplated in Section 30, paragraph (a) and Section 39 of Decree No. 1,387/01, if they obtain the prior approval of the creditor entity. The same treatment will be received by debtors in situation 3 as of the month of August 2001 not covered by the provisions of the second paragraph of Section 18 of Decree No. 1.524/01.”

Section 4 – Debtors of financial institutions and financial trusts included in Section 30, paragraph (a) and Section 39 of Decree No. 1,387/01 shall have a term of NINETY (90) days, counted as from the date of promulgation of Law No. 25,563, to totally or partially repay their outstanding debts.

Section 5 — This Decree will be effective as from its publication in the Official Gazette, it being hereby established that for the effects resulting from the provisions of Section 1 hereof, it will be effective as from the effective date of Decree No. 214/02.

Section 6 — Be it notified to the Honorable Congress of the Nation.

Section 5 — Be it notified, published and delivered to the National Bureau of the Official Register, and subsequently filed. — DUHALDE. — Jorge M. Capitanich. — Jorge Remes Lenicov. — Rodolfo Gabrielli. – María N. Doga. — Graciela M. Giannettasio. — Ginés M. González García. — Jorge R. Vanossi. – José H. Jaunarena. – Carlos F. Ruckauf. – José I. de Mendiguren. – Alfredo N. Atanasof.