Reduction of FX restrictions on payment of financial debts to non-residents

In December 2001, the economic crisis in Argentina prompted the Government to impose stringent exchange control limits on residents’ ability to access the Free Foreign Exchange Market (“Mercado Único y Libre de Cambios” or “MULC”) and transfer funds abroad.

During the last months the Central Bank has been easing the exchange control requirements on several items (e.g., payment of dividends, principal and interest of financial debts, etc.). For more information on this matter, please refer to the following articles: “Payments of financial debts to non-residents” and “Freeing of dividends and debt payments to non-residents” published in Marval News #14 of February 28, 2003; and “Matching regime for the cancellation of Central Bank financing” and “Further flexibilization of exchange controls” published in Marval News #17 of May 30, 2003).

We will concisely describe the latest developments on foreign exchange controls.

1.   Payment of principal and interest of existing financial debts to non-residents

As from June 30, 2003, free access to the MULC is granted (i.e. no prior Central Bank authorization is required) for the following payments:

(a) payment of principal on financial debts to non-residents from private sector non-financial entities in connection with financial loans, bonds and other securities, provided that such payment is made within 15 business days prior to due date;

(b) total or partial advance payments (with no limitation in time) of principal on debts mentioned in (a) above, provided that the following conditions are met:

(i) if the payment is not made as part of a debt restructuring process, the foreign currency amount to be used to prepay debt to non-residents shall not be higher than the “current value” of the portion of the debt being cancelled. Current value shall be calculated by discounting undue principal and interest installments at an annual interest rate (tasa de interés efectiva anual) equal to the implicit interest rate (tasa de interés implícita) registered for US dollar future agreements traded in "institutionalized markets" (mercados institucionalizados) for the closest term (not lower than 180 days) at the market closing time of the business day prior to the purchase of foreign exchange in the MULC;

(ii) if the payment is made as part of a debt restructuring process with non-residents, the new debt terms and conditions and the cash payments to be made shall not imply an increase in the current value of the debt;

(iii) in case of new financing disbursed as from September 4, 2002, payments may only be made after 180 days counted as from the date the foreign currency is sold in the MULC;

(c) payments of accrued and undue interest of financial debts to non-residents from private sector non-financial entities, provided that the payment is made as part of a debt restructuring process.

2.   New financings

The minimum term of new financings entered into with non-residents as from July 1, 2003 inclusive (i.e., bonds and financial obligations of private sector non-financial entities, and bonds, financial loans, repurchase transactions, credit financing granted to financial entities) has been increased from 90 to 180 days.