Clarifications on the controls to the transfer of funds into and from Argentina and other foreign exchange news

1.   Indebtedness

On July 6, 2005, the Argentine Central Bank (the “Central Bank”) issued Communication “C” 42271 relating to recent foreign exchange restrictions (waiting period and the 30% mandatory deposit).

This regulation clarifies the scope of the 30% deposit exemption set forth by Communication “A” 4377 applicable to new foreign indebtedness:

    (a) Foreign indebtedness funds which are applied to cancel debt: the referred Communication specifies that, in order to qualify for the exemption, the funds must be applied to payments of principal under financial debt or import financings.

    (b) Foreign indebtedness agreed and maintained for at least 2 years and allocated to make investments in non-financial assets in Argentina: this regulation states that such investments involve the purchases registered in the financial statements as “investments”, excluding the purchase of financial assets. However, Communication “C” 42303 issued by the Central Bank two days later replaced this provision limiting the exemption to the deposit to indebtedness allocated to investments registered as “consumer goods” in the financial statements (this regulation is not applicable to payments of imports of the goods referred to in Communication “A” 4372).

Communication “C” 42271 also clarifies that foreign financings obtained by local financial entities under Repo transactions must be executed in the single foreign exchange market (“MULC”) under the concept of financial loans.

On July 29, the Central Bank issued Communication “C” 42509 establishing that the 365 minimum term set forth by Decree No 616/05 applicable to financial foreign debt refinancing, is complied with if (i) the debt refinancing proposal is delivered to the creditors for their analysis at least 365 days prior to the access to the foreign exchange market, and (ii) the proposal is made after the expiration date for the payment of principal under the debt to be refinanced.

2.   Imports

Pursuant to Communication “A” 4385 the Central Bank reduced the requirements set forth by Communication “A” 4372 which obliged importers to purchase foreign currency in the foreign exchange market to make payments of certain consumer goods (bienes de consumo y uso final) -the “Goods”- prior to the date of the custom clearance (despacho a plaza).The new regulation also authorizes access to the foreign exchange market up to 30 days after custom clearance, or the entry of the Goods into the tax-free area.

The term for the access to the MULC is also applicable to all payments under foreign currency import financing of the Goods, whose source of funds result from a foreign financing obtained by the local bank.

Simultaneously, in order to minimize recently enacted import payments restrictions, the Central Bank set forth that importers can purchase foreign currency in the MULC to make portfolio investments in excess of the maximum limit set forth by Communication “A” 3722 (US$ 2,000,000 per calendar month) if the proceeds are allocated to pay import of Goods within 180 days following the date of access to the MULC, provided that the following conditions are met:

    (a) appointment of a financial entity responsible for this supervision and information of non-compliance to the Central Bank; the Central Bank must be informed of this appointment;

    (b) certifications by the appointed financial entity in case the access to the MULC is made through other entities;

    (c) the purchase of foreign exchange must be made under the concept of “Portfolio investments abroad for payment of imported goods”;

    (d) the resulting funds must be applied exclusively to the payment of imports; and

    (e) upon application of the funds to pay the imports, the importer will have to complete two foreign exchange forms: one for the original purpose (import payment) and the other for the application of funds with no foreign transfer under the concept of “Portfolio investments applied to imports payments”.

Funds not applied to the cancellation during the 180 day period must be transferred back to Argentina and sold for Pesos within the following 5 business days at a special rate established by the Central Bank. This repatriation is subject to general foreign exchange rules applicable to repatriating foreign assets by Argentine residents (for example, mandatory 30% deposit over the excess of US$ 2,000,000 per month).

Communication “A” 4385 also clarifies that in the case of imports of different goods under the same custom clearance, the applicable rules will be those corresponding to the group of goods with the higher CIF (Cost, Insurance and Freight) and, if they all have the same value, the most restrictive regulation will apply.

3.   Exports

Pursuant to Communication “A” 4404, issued on August 16, 2005, the Central Bank extended from 3 to 6 years the financing term that exporters may agree with importers in addition to the repatriation term set forth by the Industry, Commerce and Mining Secretary. This extension applies to payments of exports of goods included in Appendix 19 of Decree No 690/02.

4.   Mandatory 30% deposit

The Central Bank issued Communication “A” 4386, which sets forth an exception to the 30% mandatory deposit on repatriation of foreign assets by Argentine residents in excess of US$ 2,000,000 set forth by Communication “A” 4359. The reserve requirement is not applicable when the resulting Pesos are applied to the subscription and payment of public securities issued by the Argentine Government provided that the funds are applied to make payments under the public debt.

5.   Foreign assets repatriation

On July 29, the Central Bank issued Communication “C” 42510 clarifying the method used to calculate the 30% deposit applied to foreign assets repatriation exceeding the US$ 2,000,000 limit for the calendar month in which such restriction was imposed, as follows:

    (a) if the funds repatriated before June 28 exceed US$ 2,000,000, the deposit will be constituted over the 30% of the funds repatriated on June 29 and 30;

    (b) on the contrary, if the funds repatriated before June 28 do not exceed the limit established per calendar month but added to the funds repatriated on June 29 and 30 exceed the limit, the deposit will be constituted over the 30% of the amount exceeding US$ 2,000,000 over the amounts repatriated in the period.