A New Extension of Emergency Powers

On October 22, 2013, Law No. 26,896 was published in the Official Gazette (the “New Law”), 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, 2015.

The Emergency was initially declared in 2002 and it has been successively extended by the Congress over these years. The last extension was approved in 2011, through Law No. 26,729, due to be in force until December 31, 2013.

On September 12, the Executive Branch (the "PEN") submitted a bill to the Congress to provide for a new extension, which was quickly approved by both houses.

Despite strong criticism by lawmakers from opposition parties, the bill was approved —without any changes— by the Lower House on September 26, 2013 and by the Senate on October 9, 2013, and was finally promulgated by the PEN.

The main consequence of the approval by the Congress of the Bill is the extension of the Emergency and of the effects of a vast delegation of legislative powers to the PEN for a period that would extend until after the completion of the term of the current President, Ms. Cristina Fernández de Kirchner, scheduled for December 10, 2015.

1. The New Law and the Reasons Stated to Maintain the Emergency

Article 1 of the New Law extends until December 31, 2015 the effects of the laws that in recent years have renewed the Emergency, whereas Article 2 provides that the New Law will come into force on January 1, 2014. Contrary to previous laws that had approved the extension of the Emergency (such as Law No. 25,972, approved in 2004), the New Law 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.

Interestingly, the reasons given in the bill sent by the PEN to the Congress to justify a new extension of the Emergency replicate almost exactly the reasons invoked in the bill voted in 2011. As on that occasion, in its message to the Congress the PEN stated that:

1. In light of the uncertainty under which the global economy operates and of the persistence of the crisis originated in 2008 in the international financial market (which the PEN says has worsened), it would be necessary that the PEN continues holding the instruments that would allow it to preserve the levels of economic activity, consumption, investment and employment of the past ten years.
2. The swiftness and efficacy which the PEN showed in the context of a global crisis would justify that it continues enjoying the powers granted by the laws and decrees that declared the Emergency, which would reinforce its ability to act in order to protect the Nation from the widespread uncertainty and volatility that it is said to affect the global population.

In the bill submitted by the PEN it was stated that the Argentine economy had solidified its financial system, and that public finances and the balance of payments have been correctly managed. However, it was argued that the complexity of the international context advised that the Emergency and the delegation of powers to the PEN be extended for another two years.

Lawmakers from opposition parties strongly questioned the extension of the Emergency and requested the rejection of the bill submitted by the PEN.

In particular, they pointed out the existence of a contradiction between official statistics and forecasts on the progress of the country’s economy, which are mostly optimistic, and the decision to keep in place legislative rules that were passed in the context of a crisis that according to the Government would have already been overcome.

2. Subjects Covered by the Emergency and Main Powers That Will Continue Being Held by the PEN According to the New Law

a) Social, Economic, Administrative, Financial and Exchange Emergency

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 compensation 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 2011 by Law No. 26,217, and it has been extended again, for five more years, through Law No. 26,732.

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.

b) Emergency on Contracts Governed by Public Law

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.

c) Alimentary Emergency

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.

d) Occupational Emergency

An 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.

e) Sanitary Emergency

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 the population with 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 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

There is broad consensus regarding that in 2002, Argentina was undergoing 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 a truly exceptional and extraordinary situation.

More than eleven years later, the Government acknowledges that the situation of the country has improved, but (as in 2009 and 2011) this new extension of the Emergency was justified on the grounds of the existence of an international crisis and the alleged need of the PEN to have the appropriate legal tools in order to mitigate its impact on Argentina. This approach has been strongly criticized, both in Congress and in the media.

These considerations apart, there is an undisputed fact: if the New Law remains in force until December 31, 2015, Argentina will have spent almost fourteen years under an uninterrupted Emergency (or even longer, if the calculation includes Law No. 25,344, which in the year 2000 had also declared the emergency —although with a narrower scope— and was still in force when the LEP was passed).

This scenario poses an important challenge to the principle, expressly stated in Argentina’s Constitution and in precedents from the Federal Supreme Court, according to which emergency powers must be of a transitory, non-permanent character.