New regulations in connection with exceptions to non-transferable interest-free deposits

On August 28, 2009 the Argentine Central Bank (the “Central Bank”) issued Communication “A” 4974 (“Communication 4974”) which stated a new regulation with respect to the exception to non-transferable interest-free deposits (“encaje”) set forth by Decree No 616/2005, applicable to foreign financial loans with an average duration of not less than 2 years, including payments of principal and interest, to the extent that such loans are allocated to the acquisition of new capital goods for industrial activity (Communication “A” 4377). 

This regulation is applicable to all foreign debt to be entered into as from August 31, 2009.

Communication 4974 states an alternative to the regimen established by Communication “A” 4762 of the Central Bank to evidence that funds of such loans are allocated as set forth in the Central Bank’s regulations. Communication “A” 4762 establishes some requirements that must be satisfied in order to enjoy of the exceptions to the encaje. In this respect, evidence of the application of funds excepted from the encaje must be done by filing with the local financial institution all the documents confirming the application of funds to the declared purpose with a certification of the external auditor, certification that shall meet certain formalities, within 90 days of the settlement of the foreign currency in the local foreign exchange market.

In this respect, Communication 4974 allows documentation that evidences the allocation of the funds to the acquisition of new capital goods for industrial activity within 30 days from the date of settlement of the foreign currency to be filed with the local financial institution. This regulation only allows the allocation of funds to the payment of goods but does not allow any transitory allocation of them.

On the other hand, concerning the application of foreign indebtedness funds by local financial institutions in the local market Communication 4974 establishes that:

(a)   such financings must also have at least an average duration of 2 years (including payments of principal and interest), and

(b)   the local financial institution must allocate such funds to local financings to the non-financial sector within 5 business days of the settlement of the funds in the local foreign exchange market only if

(i)    such financings also have an average duration of not less than 2 years, including payments of principal and interest, and

(ii)   the local debtor allocates such funds to the acquisition of non-financing assets, pursuant to Communication “A” 4762 (regulation that included the clarifications incorporated by Communications “C” 42,271, 42,884, 44,670 and 46,394).

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