New regulations of the Argentine Central Bank about payments to local financial entities of financial debts and financial guarantees of foreign residents

On March 7, 2006, the Argentine Central Bank issued Communication “A” 4507, effective as from March 8, 2006, which provides that as a general principle, payments by foreign residents to local financial entities made through the local foreign exchange market of financial debts and financial guarantees, shall be exempted from the mandatory 30% deposit set forth by section 4 of Decree No 616/05 and point 6 of Communication “A” 4359 of the Central Bank (commonly known as “encaje”; please see our article “New restrictions for the transfer of funds into and from Argentina” published in Marval News # 40 of June 30, 2005), only if the Central Bank grants prior authorization.

The Communication provides the following exceptions to the above mentioned general principle, under which the prior Central Bank authorization is not required to exempt the payment from the 30% mandatory deposit:

1. Collections of financial debts incurred by the foreign resident before the date when Decree No 616/05 came in force (i.e. June 10, 2005).
2. Collections of the following guarantees:

(i) commercial guarantees;

(ii) financial guarantees granted by the foreign resident before June 10, 2005;

(iii) irrevocable financial guarantees granted by foreign banks, multilateral entities and credit agencies, to cover risks of guarantees granted by local financial entities, when:

(a) such local guarantees have been granted to guarantee the participation of clients of the local bank in Argentina in public bids or the performance of public works at the national or provincial jurisdiction, or

(b)   the funds collection takes place after 365 days of the date of issuance of the guarantee.

The Communication provides that to enter into the exchange transaction, the corresponding local authorized foreign exchange entity must be delivered the documentation attesting the date of issuance and delivery of the financial guarantee (e.g. an authenticated “Swift” message or similar message), or the date the foreign resident has incurred the financial debt, as the case may be. Said documentation must be kept by the foreign exchange entity at the disposal of the Central Bank.