New restrictions for the transfer of funds into and from Argentina

On June 9, 2005, the Argentine Government issued Decree No 616/2005, published in the Official Gazette on June 10, 2005, which sets forth new restrictions for the transfer of funds into and from Argentina. On the same day, the Argentine Central Bank (the “Central Bank”) issued Communications “A” 4359, “A” 4360 and “B” 8941 implementing this new rule. Additionally, on June 28, 2005, the Ministry of Economy and Production issued Resolution 365/2005 amending the referred regulations and the Central Bank regulated this new resolution by means of Communication “A” 4377 dated June 29, 2005.

These new regulations reinforced some of the existing obligations (for example, the registration of the transfer of foreign currency into and from the local foreign exchange market and the minimum “waiting period” for the funds that entered the country to be transferred out of the country, already in place pursuant to Decree No 285/03 and Resolution No 292/05 of the Ministry of Economy) and set forth additional restrictions (a 30% reserve requirement on funds transferred into Argentina).

1.    Registration of transactions

The transfer of funds into and from Argentina that may imply future payments in foreign currency must be registered before the Central Bank. This registration currently takes place through the execution of foreign currency exchange forms with financial entities, as well as through certain information regimes such as the one set forth by Communication “A” 3602 regarding foreign debt of the private sector.

2.    Waiting period

All new foreign indebtedness of Argentine residents and any refinancing of existing foreign debt must be agreed and maintained in the local foreign exchange market for at least 365 days, and cannot be cancelled before such waiting period elapses whatever payment method is used. The regulations issued by the Central Bank set forth that payments with or without transfer through the local foreign exchange market are banned. As the Decree does not clarify if this obligation applies to payments of interest, the waiting period would not applicable to these payments.

The waiting period in not applicable to the following transactions:

(i)    foreign trade transactions (advance payments, pre-financing of exports and imports financing);

(ii)    foreign trade credit lines of financial entities;

(iii)    balances of foreign exchange transactions with correspondent exchange entities (which are not credit lines); and

(iv)    initial public offering of debt securities listed on self-regulated markets.

The waiting period applies to payments of principal of transactions disbursed or renewed after, but including, May 26, 2005. On the contrary, transactions disbursed prior to such date whose proceeds have not been transferred into Argentina and converted into pesos in the local foreign exchange market (because the 30 or 90 day period, depending on the amount of the transaction according to Communication “A” 4142 as amended by Communication “A” 4321, has not elapsed ) are subject to the waiting period in effect at the time of disbursement (180 days), provided that the intervening financial entity has documentation evidencing the date of disbursement.

The portfolio investments by non-Argentine residents referred to in section b) below are also subject to the minimum waiting period.

3.    Mandatory 30% deposit

Argentine residents who incur indebtedness with non-Argentine residents, and foreign residents who make portfolio investments in Argentina are required to constitute a deposit or reserve in U.S. Dollars equal to 30% of the amount of foreign currency transferred into Argentina and sold for Pesos in the foreign exchange market.

This deposit must be made in a local financial entity for a 365 days period and registered in the name of the individual or legal entity executing the foreign exchange transaction. The deposit will be non-transferable, will not accrue interest and cannot be used as collateral of any credit transaction.

Financial entities must register 100% of the foreign currency received, sell it for Pesos and credit such Pesos in an account of the person executing the exchange transaction in the local financial system. The financial entity should then sell the U.S. Dollars to the person making the deposit (this implies a double foreign exchange transaction). The deposit must be placed beforethe balance may be credited.

The following transactions are subject to the 30% reserve requirement:

(I)Argentine residents:

    (a)    foreign indebtedness, except for (i) foreign trade financings, (ii) initial public offerings of debt securities listed on self-regulated markets, (iii) indebtedness with Multilateral and Bilateral Credit Institutions and Official Credit Agencies, directly or through their related agencies, (iv) financial indebtedness as long as, simultaneously with the transfer of the funds into Argentina, the resulting Pesos, net of costs and taxes, are applied to the acquisition of foreign currency for the payment of principal under foreign debt and/or to make direct investments in foreign companies in accordance with applicable regulations, and (v) financial indebtedness the proceeds of which are used for investments in non financial assets, and agreed and repaid at an average of no less than 2 years, including payments of principal and interest. Financial indebtedness disbursed and pending transfer into Argentina and sale for Pesos through the local foreign exchange market (because the 30 or 90 day period depending on the amount of the transaction according to Communication “A” 4142 as atended by Communication “A” 4321, has not elapsed), are not subject to the mandatory deposit if they are repaid to the creditor before August 29, 2005, in which case the disbursed funds must not be transferred into Argentina and sold for Pesos though the local foreign exchange market; and

    (b)    initial private issuances of stock of Argentine companies, provided they are not direct investment funds.

    (c)    acquisition of Pesos due to the sale of foreign assets for the portion exceeding the equivalent of US$ 2,000,000 per month in all the local entities authorized to buy and sell foreign exchange. When such acquisitions exceed US$ 50,000 per month and per individual or entity in all the local entities authorized to buy and sell foreign exchange, the Tax Bureau (Administración Federal de Ingresos Públicos) must be informed. The sale of foreign exchange acquired through the local exchange market and allocated to portfolio investments abroad for the repurchase and/or repayment of foreign indebtedness in accordance with applicable regulations (Central Bank Communications “A” 3998 and 4178, and amendments thereof), are exempted from the reserve requirement when the resulting funds are applied to the purposes contemplated in the regulations that originally allowed such portfolio investments.

Argentine residents wanting to access the foreign exchange market in order to cancel export advances and pre-financings transferred into Argentina and sold for Pesos after June 9, 2005 (instead of cancelling them with the direct application of exports proceeds abroad) must constitute the deposit prior to the access to the foreign exchange market.

(II)    Foreign residents:

    (a)    portfolio investments allocated to the holding or acquisition of local currency and of financial assets and liabilities, except for the initial subscription of debt securities and shares of local companies which are publicly offered and are listed on self-regulated markets;

    (b)    portfolio investments allocated to the acquisition of any rights on Government securities traded in the secondary market (i.e. to exempt the initial public offer of public debt from the reserve requirement);

    (c)    portfolio investments allocated to the acquisition of securities issued by the Central Bank under initial offerings.

This requirement is not applicable to foreign direct investments, including capital contributions to local companies of direct investment (namely, a company set up or not as legal entity in which the foreign direct investor holds at least 10% of ordinary shares or voting rights or its equivalent), and foreign funds transferred into Argentina by non-Argentine residents for the purpose of purchasing local assets that qualify as direct investment (such as real estate located in Argentina), provided that the intervening financial entity has the documentation evidencing such specific purpose.

4.    Re-conversion to foreign currency of funds transferred into Argentina when such transfer is not mandatory

The Central Bank repealed Communications “A” 3752 and “C” 38579, which permitted the re-conversion to foreign currency of funds transferred into Argentina under transactions where such transfer was non-mandatory. Accordingly, the amounts transferred and converted to pesos will be subject to the general restrictions for accessing the foreign exchange market regarding types of transactions and maximum amounts depending on whether the person transferring the funds into Argentina is an Argentine resident or not.

Non-compliance with the above mentioned regulations is subject to the penalties set forth in the Criminal Exchange Regime (Law No 19,359, restated text by Decree No 480/95, as amended).