New limits on access to the Argentine Foreign Exchange Market to make portfolio investments out of Argentina. Clarification on the required minimum term for the cancellation of refinanced foreign debt

1.    Making of portfolio investments out of Argentina

Communication “A” 4349 dated as of May 12, 2005 (the “Communication”) issued by the Central Bank of the Republic of Argentina (the “Central Bank”) established that as of June 13, 2005 Argentine residents not included in the financial sector may only purchase foreign currency in the Mercado Único y Libre de Cambios (Argentine Foreign Exchange Market or “MULC”) to make portfolio investments out of Argentina in accordance with regulations and limits provided for in Communication “A” 3722 and complementary rules; provided that as of the date they have access to the MULC, they do not register any amount of principal and/or interest due and unpaid under any type of foreign debt.

In order to have access to the MULC to make portfolio investments out of Argentina, financial entities must receive an affidavit from the client stating that as of the date thereof, the client:

a) has reported outstanding debt with non-Argentine residents pursuant to the information regime provided for in Communication “A” 3602 and complementary rules, if applicable, and

b) does not register any due and unpaid foreign debt.

The Communication also establishes that payment obligations with non-Argentine residents without a maturity date shall be deemed due 180 days after the incurrence date.

Notwithstanding the foregoing, the Communication does not apply to purchases of bills and traveller checks for amounts not exceeding the equivalent of US$ 10,000 per calendar month.

If an Argentine resident registers due and unpaid foreign debts after June 13, he/she may still have access to the MULC to make portfolio investments out of Argentina only for purposes of (i) repurchasing and/or cancelling foreign debt under any debt restructuring process, or (ii) paying foreign debt due within 360 days as from the date of having access to the MULC (Communications “A” 3998, “A” 4178 and complementary rules).

2.    Minimum term for the cancellation of refinanced foreign debt

By means of Communication “C” 41558, dated April 22, 2005 the Central Bank clarified that the 180-day minimum term required to be elapsed from the date of liquidation in Argentina of funds disbursed under foreign debt or from its last renewal or refinancing to have access to the MULC to cancel such debt will be deemed as elapsed, in the case of payments of principal obligations undertaken in order to implement foreign debt refinancing agreements, and provided that:

(i)the refinancing proposal was submitted to foreign creditors at least 180 days prior to the date of having access to the MULC, and

(ii)principal obligations with maturity prior to the date of submittal of the proposal have been included in such proposal.

However, upon enactment on May 26, 2005 of Resolution No 292/2005 of the Argentine Ministry of Economy, the minimum term above mentioned has been extended to 365 days. Therefore, further regulations of the Central Bank are expected in the near future on this matter.For more information on Resolution No 292/2005, please refer to “New term for the transfer abroad of foreign funds that entered the local market” in this edition of Marval News.