Foreign Exchange Update/News

1.       Formation of foreign assets to be used for the payment of foreign financings

On September 12, 2006, the Central Bank of the Republic of Argentina (the “Central Bank”) issued new regulations relaxing existing limits for the formation of foreign assets by Argentine residents. Indeed, pursuant to this new regime, Argentine residents now have access to the official exchange market for the formation of foreign assets (inter alia, portfolio investments and direct investments) up to a maximum threshold (currently, US$ 2,000,000 per month unless an exception applies).

Under the new regulations, the existing exception to the US$ 2,000,000 limit in cases where the portfolio investments made abroad (and their proceeds) are used for the payment of foreign financings has been broadened.

The new version of the exception provides a new threshold for the formation of foreign assets which are to be used for paying foreign financings. This will be equal to the total amount of outstanding (but performing) debt as of 12.31.05, together with interest corresponding to the next interest payment date calculated at the date of the access to the official exchange market.

Formerly, the limit consisted of an amount equal to the principal and interest payable during the following 360 days.

Other requirements have not been altered, namely: payment of foreign debt has to be made within 360 days of the date of access to the official exchange market; the appointment of an Argentine financial institution for following up on the transaction; compliance with the reporting regime on foreign debt; nullity of due and unpaid foreign debt; compliance with minimum term for foreign debt; and execution of relevant foreign exchange documentation.

2.       Clarification of minimum term for renewal of foreign financings

2.1.The Central Bank has issued clarification pursuant to which the minimum term requirement (currently 365 calendar days) applicable to renewals of existing financings shall be deemed complied with whenever such funds are applied to the payment of principal of debt issued as part of a foreign debt restructuring process.

In order to qualify for this exception, the debtor has to show (a) that the payment will be applied to the payment of unpaid principal due within at least 365 calendar days prior to the date of access to the official exchange market, regardless of the fact that the restructuring agreement has been executed more recently; or (b) that the restructuring proposal has been offered to the foreign creditors at least during 365 calendar days prior to the date of access to the official exchange market, provided that the restructuring proposal shall have included principal on debt with a due date prior to the date of the submission of such proposal.

2.2.Lastly, the Central Bank has determined that the minimum term applicable to loans (a) that once due are only payable at the option of the creditor; or (b) with an automatic renewal for an undetermined term feature shall start to be computed on the date of the renewal. This clarification is aimed at filling the existing gap relating to financings without a precise maturity date.