Trusts for repayments of debts to non-residents

The flexibilization of exchange controls, began by the Central Bank a few months ago, continues with the issuance of Communication “A” 3872 dated January 27, 2003. This Communication allows the acquisition of foreign currency, within a certain period of time, to be used in the future for payments of financial debts to non-residents.

In this way the Central Bank eases its former policy, pursuant to which its prior consent was required for the acquisition of foreign currency for debt repayment, except for those debts that were rescheduled in accordance to Central Bank’s regulations, i.e., rescheduling very favorable for debtors and to the detriment of the creditors’ interests. Now debtors are allowed to purchase in advance foreign currency to repay debts, although such payments remain subject to the Central Bank’s authorization.

Communication “A” 3872, which is applicable to private sector non-financial entities or individuals, introduces the concept of trusts for repayments of debts. For a sixty-day period ending March 28, debtors are allowed to access the Free Foreign Exchange Market, up-to an amount equivalent to 5% of the principal of debts matured prior to February 10, 2002 (the original amount was 3% and if the flexibilization of the market continues it is likely to be increased again). Debts must relate to debt securities and financial loans, with due date before December 31, 2002; and they must have been previously declared pursuant to the terms of Communication “A” 3602.

The foreign currency thus acquired is used to constitute a trust under Argentine or foreign law. However, the trustee must be a local entity.

Notwithstanding this, foreign exchange acquired before February 21 may be transferred to a trust until February 28. Otherwise, it must be sold in the Free Foreign Exchange Market.

The trusts’ funds could only be invested in (i) foreign governmental bonds; (ii) shares of non residents companies, listed in international markets, with no relation with the beneficiary; and (iii) certificates of deposits in foreign banks, with “A” grade or more. They could also be deposit in custody accounts (cuentas custodia) in local banks. Profits of these investments will be part of the trust.

Finally, the trust’s funds could be sold in the Free Foreign Exchange Market, with Central Bank’s prior consent; or subejct to rescheduling or Central Bank approval used to pay the above-referred beneficiary’s debts.