Exception to the mandatory deposit (“encaje”) for infrastructure works

On September 17, 2006 the Ministry of Economy and Production (the “Ministry of Economy”) issued Resolution No 731/2006 (the “New Resolution”) adding a new exception to the obligation imposed by Articles 4(c) and 4(d) of Decree No 616/2005 which requires the making of a non-transferable interest-free deposit known as an “encaje”. The New Resolution was published in the Official Gazette on September 18, 2006. 

Decree No 616/2005 stated that the encaje should apply to foreign exchange inflows into the foreign exchange market derived from:

(a)  financial sector and non-financial private sector financial liabilities, except for primary issues of debt instruments listed and traded in self-regulated markets; and

(b)   non-resident portfolio investment for

(i)           domestic currency holdings; and

(ii)           financial sector and private non-financial sector assets and liabilities, insofar as they do not relate to the primary subscription of debt instruments listed and traded in self regulated markets, and/or primary subscription of shares of resident companies listed and traded in self-regulated markets; and

(iii)           acquisitions of rights in secondary markets over government securities.

The encaje consists of a non-transferable interest-free deposit in U.S. dollars equal to 30% of the amount of foreign currency transferred into Argentina and sold for Pesos in the local foreign exchange market. This deposit must be made in a local financial institution for a 365-day period and registered in the name of the individual or legal entity executing the foreign exchange transaction. The deposit cannot be used as collateral of any credit transaction.

The Ministry of Economy had already allowed certain exceptions to the encaje in Resolution No 365/2005. However, Resolution No 637/2005 of such ministry had stipulated that all inflow of funds into the local foreign exchange market to subscribe to the primary issuance of securities, bonds or certificates of participation issued by a trustee of a trust, with or without public offer and listing in self-regulated markets, must comply with the encaje if applicable to the inflow of funds to the local foreign exchange market for the acquisition of any of the underlying assets.

The exception introduced by the New Resolution applies to the inflow of funds to the local foreign exchange market to be allocated to the primary subscription of certificates of participations, bonds or debt securities issued by trusts whose purpose is the development of energy infrastructure works. 

The New Resolution follows the Energy Infrastructure Works Law No 26,095 (recently implemented by Decree No 1,216/2006) that stated that the development of energy infrastructure works that allow the expansion of the generation, transportation and/or distribution system of natural gas, LPG and electricity are a main goal for the Argentine Government.  Such law established specific charges for the development of the works referred to above as underlying assets of the trusts already set up or to be set up for the development of infrastructure works in connection with gas and electricity. Such specific charges will be valid until the payment in full of the securities issued by such trusts.