A New Extension of the Emergency

As anticipated by the press, the Federal Congress has approved the bill submitted some weeks ago by the Executive Branch (the “Bill”), pursuant to which the Laws and Decrees that declared an emergency in the social, economic, financial, administrative, exchange matters, public contracts, sanitary, occupational and alimentary fields (the “Emergency”) will remain in force until December 31, 2013.

The Emergency was initially declared in 2002 and since 2003 it has been successively extended by Congress. The last extension had been approved in 2009, through Law No. 26,563, to be in force until December 31, 2011. It was expected that Congress –with a partially renewed membership after the national elections held in October– would vote favorably on the Bill. The process to have the Bill approved took just two weeks. Now the Executive Branch will proceed to promulgate it as new law.

The main consequence of the approval of the Bill is the extension of the Emergency and of the effects of a vast delegation of legislative powers to the Executive Branch (the “PEN”).

1. The Bill approved by Congress

The Bill approved by Congress has three articles only. The first one extends until December 31, 2013 the effects of the laws that in recent years have been extending the duration of the Emergency, and the second one provides that the new law will come into force on January 1, 2012. The third one orders that the approval of the Bill be notified to the PEN, for its promulgation.

Contrary to previous laws that had approved the extension of the Emergency (such as Law No. 25,972), the Bill does not authorize the PEN to declare that the Emergency has ceased, totally or partially, if it concludes that the current situation has been overcome. As a result, the Emergency will remain in force until the expiration of the two-year term, unless it is abrogated in advance.

Among the reasons given in the Bill to justify a new extension of the Emergency are the following:

1. In light of the uncertainty under which the global economy operates and of the persistence of the international financial crisis, it would be necessary that the PEN continues holding the instruments that would allow it to preserve the current levels of economic activity, consumption, investment and employment.
2. The swiftness and efficacy which the PEN showed in the crisis that began in 2008 would justify that it continues enjoying the powers granted by the laws and decrees that declared the Emergency, which would reinforce its capacity to act within a context of growing complexity.

In the Bill it is stated that the Argentine economy has solidified its financial system, and that the public finances and the balance of payments have been correctly managed; but the conclusion is that the variable character of the crisis and its continuous transformation advise that the Emergency be extended for two more years.

2. Subjects covered by the Emergency and main powers that will continue to be held by the PEN

The situation of emergency in these areas was declared by section 1 of Public Emergency Law No 25,561 (the “LEP”).

The LEP empowered the PEN to set forth the exchange relation between the Argentine peso and foreign currencies and to enact exchange regulations.

It also empowered the PEN to restructure the obligations affected by the modification of the exchange regime and, in relation to the measures to be adopted with respect to obligations linked to the financial system, to grant compensations to the banks.

To this effect, the PEN was authorized by the LEP to issue bonds that would be guaranteed with export duties to be applicable on hydrocarbons. The power to set forth such export duties on hydrocarbons, with that or other purposes, was extended until year 2012 by Law No 26,217, and it has been extended again now, for five more years, through the approval of a specific bill.

Finally, the LEP empowered the PEN to temporarily regulate prices of components, goods and critical services, with the purpose of protecting users and consumers’ rights from possible distortions of the market or from monopoly or oligopoly actions.

The LEP set forth the conversion to Argentine pesos of the prices and tariffs fixed in the contracts entered into by the National Public Administration under public law regulations, and rendered ineffective adjustment clauses in foreign currencies and indexation clauses. The PEN was authorized to renegotiate such agreements according to certain guidelines.

In 2003, Law No. 25,790 extended the term to conduct the renegotiation and set forth additional guidelines. Thus, it was provided that the renegotiation may include certain sectors of public services or certain agreements in particular. It was also decided that the renegotiation may include partial aspects of concession or license agreements, contemplate agreement adjustments or transitory amendments, as well as periodic revisions or the adjustment of quality standards.

A national food emergency was initially declared by Decree No. 108/2002.

By Decree No. 108/2002 resources were allocated from the national budget for the purchasing of goods for the attention of the highly vulnerable population’s basic needs. These resources were to be allocated among the provinces and the city of Buenos Aires.

Occupational emergency was initially declared by Decrees No. 165/2002 and No. 565/2002.

These Decrees established an economic assistance program for vulnerable sectors of the population.

A national sanitary emergency was initially declared by Decree No. 486/2002. Decree No. 486/2002 sets forth that an emergency is declared with the purpose of guaranteeing to the population access to goods and basic services necessary for the preservation of health.

Decree No. 486/2002 authorized the Ministry of Health to resort to direct contracting for the agreements. It also empowers the Minister of Health to set forth control mechanisms for medicines and health supplies prices and allows direct imports of supplies in case of unjustified price increases.

3. Final comments

In 2002, Argentina was enduring one of its worst political, economic and social crises. The declaration of Emergency and the delegation of powers to the PEN, approved through the LEP and the other laws and decrees referred to above were aimed at coping with an exceptional and extraordinary situation.

Almost ten years later, in the Bill it is acknowledged that the situation of the country has improved, but the new extension of the Emergency is justified on the grounds of the existence of an international crisis.

Pursuant to Argentina’s Constitution and precedents from the Federal Supreme Court, emergency powers must be of a transitory, non-permanent character. It is possible that an intense exercise of the powers delegated to the PEN on the basis of the Emergency gives rise to some objections and challenges.

Traditionally the Argentine courts have tended to be deferential towards the appraisal of the political authorities with regards to the existence of a situation of emergency. It remains to be seen whether the singular duration that the declaration made in 2002 has had (despite the significant improvement in most social and economic indicators since then), as well as the broadness and relative lack of determination of the powers that will remain in the hands of the PEN, may lead to a somewhat stricter judicial review in relation to these matters.