The Central Bank established the procedure for the compensation of Law No 25,796

In Marval News # 23, of November 28, 2003, and Marval News # 25, of February 25, 2004, we described the details of the new BODEN compensation to financial institutions for the consequences of adjusting some of their assets by the salary adjustment rate (“CVS”) versus the inflation adjustment rate (“CER”) over most of their obligations.

Law No 25,796 -which establishes the compensation and has been regulated by Decree No. 117/04- empowers the Ministry of Economy to issue bonds (BODEN) denominated in pesos with a variable interest rate due in 2013 for up to AR$ 2,800 million. However, the regulation of the procedure of the compensation by the Central Bank of Argentina (“BCRA”) was still pending.

On March 12, 2004 BCRA issued Communication “A” 4114 to implement such procedure. The most important points of such regulation are the following:

i. Financial institutions which choose to participate in the compensation scheme (as we explained in our previous articles the compensation is optional) must file a letter to that effect to BCRA signed by its legal representative, in accordance with the model attached to Communication “A” 4114, before April 30, 2004. If they fail to submit such letter before the deadline, BCRA will consider that the financial institution has chosen not to participate in the compensation procedure, and such institution will not be entitled to any later claim.

ii. Financial institutions which choose to partially participate in the compensation scheme must determine the same percentage of participation for all their lines of credit (i.e., mortgage loans, chattel mortgage loans and personal loans, as established by Decree No 117/04).

iii. Financial institutions, before receiving the compensation bonds, must grant a guarantee in favor of the Argentine Government. Such guarantee can be conformed by any of the bonds described in Article 10 of Annex II of Decree No 117/04.

The financial institutions must also comply with the condition established by Decree No 117/04 (i.e., as from February 3, 2002, the financial institutions must have granted new loans or have restructured old loans, improving their terms and conditions).

The conditions described above are not applicable to (i) restructured financial institutions, in accordance with the provisions of Section II of Article 35 bis of Law No 21,526; and (ii) suspended financial institutions, in accordance with Article 49 of Law No 24,144.

iv. Communication “A” 4114 also regulates the application of the compensation for loans which were originated by financial institutions and were transferred to a financial trust before January 31, 2002, that were included by Decree No 117/04.

In connection thereby, the new regulation establishes that the compensation for such loans corresponds to the institutions that held the certificates issued by the financial trust before January 31, 2002. The regulation also establishes that in these cases the compensation will be proportional to the percentage that the certificates represent over the assets of the financial trust.