Changes on the foreign exchange market

Communication “A” 5085 of the Central Bank imposed, as of June 8, 2010, significant changes on the legal framework that governs the access of Argentine residents to the Argentine foreign exchange market (the “FX Market”) for the purchase of external assets (commonly referred to as “atesoramiento” or “investment”), including the following:

a) In the case of trusts, only those trusts formed by contributions from the national public sector retain the right to buy foreign currency in the FX Market for investment without prior Central Bank approval (provided they comply with the other applicable requirements under the regulations). On the contrary, the other trusts, including those formed by contributions from the private sector and the public provincial, municipal and/or mixed sectors, require the prior approval of the Central Bank, unless the foreign currency is used for the purchase of an initial offering of securities denominated in foreign currency issued by the national government.

b) In the case of mutual funds, they are allowed to purchase foreign currency in the FX Market without prior Central Bank approval only to pay for the redemption in Argentina of fund shares by non-financial sector clients and provided that they have previously transferred to Argentina foreign currency at least in the same amount. In addition, due to the elimination of the investments concepts “portfolio investments of mutual funds” and “cash purchases of mutual funds” from the legal framework, mutual funds can no longer buy foreign currency in the FX for no specific purpose without prior Central Bank approval.

c) At first, the ambiguous text of Communication “A” 5085, which allows the purchase of foreign currency in the FX Market for investment to “legal entities incorporated in Argentina,” created uncertainty because it could be construed as forbidding such purchases by local branches because Argentine branches of foreign companies are not “incorporated” in Argentina, but rather their legal existence is recognized in Argentina through their registration in the Register of Commerce of the relevant Argentine jurisdiction. However, since then, senior officers of the Central Bank have informally indicated that, notwithstanding that misleading text, Communication “A” 5085 does not impose any additional restriction on the right of branches to purchase foreign currency for investment.

d) When the aggregate foreign currency funds purchased by an Argentine resident within a calendar year in the FX Market exceed US$ 250,000, there must be a control of the source of the funds for tax purposes and the financial entity must request back-up documentation from the client for that purpose.

e) The purchase of foreign currency (including cash) for portfolio investments in the FX Market within a calendar month in excess of US$ 20,000 in the aggregate must made through a debit from the current account of the client, through a MEP system wire transfer or with a check against an account of the client.

f) Foreign currency funds purchased for no specific purpose cannot be used, without prior Central Bank approval, for the acquisition in the secondary market of securities issued by non-residents of Argentina that trade in Argentina.

g) The external financial and commercial debts of Argentine residents that lack a scheduled maturity are deemed to have matured after 365 days (instead of 180 days, as was the case before the issuance of Communication “A” 5085).