Foreign Exchange Controls Today

1. Introduction

Since the reinstatement of foreign exchange controls in December 2001, Argentina has imposed numerous restrictions and requirements on foreign exchange trades and cross-border transfers. Those controls have become a cornerstone of the economic policy of the current administration, which perceives them as a useful tool to beef up the dollar reserves of the Central Bank, manage currency price fluctuations, limit the foreign currency liabilities of the private sector, and curtail capital flight. For the most part, the main opposition parties have refrained from challenging these policies publicly and, therefore, at this stage it seems unlikely that foreign exchange controls will be lifted or significantly relaxed in the near future, regardless of the outcome of next year’s presidential election.

As a general rule, all purchases, sales and cross-border transfers of foreign currency to and from Argentina must be made through an Argentine licensed financial entity or foreign exchange house (collectively, for this purpose, the “FX Market”). The rate of exchange in the FX Market is determined by market forces, but the Central Bank has the power to intervene by buying and selling foreign currency for its own account, a practice in which it engages on a regular basis.

The description below of the impact of foreign exchange regulations in certain transactions is just a summary intended to highlight some of the issues involved and by no means exhausts all rules that may be relevant to specific circumstances. The terms “Argentine resident” and “non-Argentine resident” used below refer to both individuals and companies (in the case of companies, as a general rule residency is determined by place of incorporation, or registration in the case of branches).

While technically the Central Bank may grant, upon request, a special exemption from some of the restrictions described below, in practice it rarely does.

2. Foreign financing of Argentine residents

As a general rule, Argentine residents must transfer to Argentina and sell for Pesos in the FX Market the foreign currency proceeds of financings granted by non-Argentine residents.

Unless they qualify for an exemption, foreign financings of Argentine residents are subject to a 365-day mandatory deposit in U.S. Dollars with a local financial entity equal to 30% of the financing proceeds settled in the FX Market (the “Mandatory Deposit”). The Mandatory Deposit does not accrue interest and cannot be used as collateral. The qualifying exemptions include, among others, loans granted by multilateral credit agencies and official credit institutions approved by the Central Bank, international trade financings, initial public offerings of debt securities listed on self-regulated markets and certain loans granted to finance investments in non-financial assets. Following the onset of the global financial crisis in 2008, the Ministry of Economy showed a willingness to grant exemptions from the Mandatory Deposit upon request to external loans obtained by certain Argentine companies, which were deemed a critical funding source for their operations in that challenging economic environment.

Regardless of the method used for repayment (i.e., whether repayment requires the purchase of foreign currency in the FX Market or not), principal can only be repaid or cancelled one year after the proceeds have been disbursed to the Argentine resident, or the debt has been refinanced, if applicable (the “Mandatory Waiting Period”), unless the transaction qualifies for an exemption on account of the type of financing (exemptions apply to international trade financings and listed debt securities offered publicly after June 2005). The Argentine resident may purchase foreign currency in the FX Market to repay principal one year after the proceeds have been sold in the FX Market, or the debt has been refinanced, if applicable.

3. Foreign investments in Argentina

In general, foreign investments can be classified as “portfolio” or “direct” investments. Direct investments are participations in a local company of at least 10% of its ordinary shares or voting rights. Portfolio investments include, among others, participations in local companies below that cap, as well as holdings of Argentine currency, deposits in local banks, and debt securities of Argentine issuers.

Funds transferred to Argentina by non-Argentine residents for portfolio investments are subject to the Mandatory Deposit and the Mandatory Waiting Period (with a few exceptions, such as the initial subscription of debt securities and shares of local companies which are publicly offered and listed on self-regulated markets). Repatriation of such portfolio investments is limited to an aggregate amount of US$ 500,000 per calendar month, but, if the portfolio investment was made with local currency funds already held in Argentina, instead of with foreign currency transferred to Argentina for such purpose, the maximum amount that can be repatriated is reduced to US$ 5,000 per calendar month.

Funds transferred to Argentina by non-Argentine residents for direct investments and the purchase of Argentine real estate are subject to the Mandatory Waiting Period, but are exempted from the Mandatory Deposit if certain conditions are met. Provided that the Mandatory Waiting Period has elapsed, there are no restrictions on the repatriation of the proceeds from the sale, liquidation or capital reduction of a direct investment.

Argentine companies may freely purchase foreign currency and transfer it abroad to pay profits and dividends to non-Argentine shareholders, provided that the dividends correspond to closed financial statements certified by external auditors.

4. Foreign trade

Argentine residents are required to bring to Argentina and sell for Pesos in the FX Market the foreign currency proceeds from the export of goods and services by the applicable regulatory deadline. In the case of goods, the deadline depends on the type of product and varies from 60 to 360 calendar days, plus an additional 120 business days for the sale of the foreign currency, counted from the time the good is exported.[1] In the case of services, the deadline is 15 business days counted from the time the proceeds are received by the Argentine resident. The proceeds from the exports of goods which are then applied to the repayment of qualifying export related financings are exempted from this repatriation obligation, provided that the proceeds of such financings were originally transferred to Argentina and sold for Pesos in the FX Market.

5. Investments of Argentine residents outside Argentina

Argentine residents may purchase foreign currency in the FX Market for investment purposes up to US$ 2,000,000 per calendar month. The concept of “investment” includes, among others, real estate investments made abroad, portfolio investments (including foreign currency held in Argentina, bank deposits, and purchases of shares, bonds or other financial investments made abroad), loans granted to non-Argentine residents and other investments made abroad by Argentine residents. In addition to being subject to that maximum amount limit, the right of Argentine residents to acquire foreign assets through “investments” requires additionally that they do not have debts of any kind due and unpaid to foreign creditors and their compliance with the information regime required under foreign exchange regulations. For the purposes of this requirement, any debt without a scheduled maturity is deemed to be past-due 365 days after the date on which it was incurred.

6. Derivatives