Principal Provisions of Decree No. 1387/01

1. Debt swap
The Minister of Economy is authorized to offer a swap of public debt for Secured Loans or Secured Public Bonds (“Secured Debt”), if the swap brings about lower interest rates. Additionally, in certain cases, an extension of the term of repayment is required. The debt swap will be offered directly to financial entities, investment funds, insurance companies and pension funds. Other persons may be able to participate in this regime through financial entities.

The Secured Debt will bear an interest at a rate that will be no higher than seven per cent (7%) or LIBOR plus three per cent (3%) per year and will be guaranteed by the collection of future taxes or by other guarantees provided by third parties.

The result of the swap is exempted from Income Tax and interest payments upon the Secured Debt are exempted from all national taxes.

2. Compensation between obligations and credits against the State

Under Section 823 of the Civil Code, the compensation of credits and debts between the State and private persons as a means of cancelling obligations was severely restricted. The Decree has amended Section 823 to allow private persons to offset their credits arising from principal and interest that are matured or due under public bonds with any debts they may have with the State.

3. Credit Invoice (“factura de crédito”)

In any sale or supply of movable goods or services carried out between Argentine persons that is not paid in cash, it is mandatory to issue a security named “credit invoice” unless certain means of payment, such as deferred checks, are used.

In cases in which the use of a credit invoice is mandatory, the Decree states that the parties shall not be allowed to evidence the transaction by any means other than such credit invoice.

The intention is to provide small and medium-sized enterprises with a better tool of financing through securities issued by the large companies to which they supply goods and services.

The credit invoice can be replaced by a security named “bank collection of invoice of credit” (“cobranza bancaria de factura de crédito”), issued by a licensed financial entity.

4. Pension Funds

Currently, there are two pension systems: one is public and the other is private. Workers that have chosen to participate in the private pension system, contributed 11% of their salaries each month. The Decree reduced such contributions to 5% of their salaries each month for a period of one year that can be extended for another year.

Likewise, pursuant to the Decree, private pension funds may now invest, among other options:

a) Up to 50% of their assets in bonds or treasury bonds (“letras del tesoro”) issued by the Federal State, or loans granted to the Federal State, which can be increased up to 100% of their assets if the excess over the 50% is secured by the collection of future taxes, by a security interest in real property, or by international organizations of which Argentina is a member.

b) Up to 10% of their assets in certificates of participation and debt securities issued by financial trusts whose underlying assets are, total or partially, financial derivatives.

5. Capitalization of tax liabilities and non-declared assets

Argentine corporations, legal entities transformed into corporations, or businessmen that transfer their going concern to corporations, can cancel their federal tax liabilities that are due up to September 30, 2001, through the issue of preferred shares which are convertible into ordinary shares for delivery to the Federal Government. Additionally, certain requirements need to be met, such as:

a) The corporation must have had on average of, at least, five employees during the previous six months.

b) The corporation must be active.

c) The management of the corporation after capitalization must remain with the previous managers.

The shares will be transferred to a trust in which the Argentine National Bank (“Banco de la Nación Argentina”) will act as trustee and will issue certificates of participation to be owned by the Argentine Provinces, the Federal Government and the Government of the City of Buenos Aires.

The shareholders will be entitled to repurchase the shares calculated upon their net equity value (“valor patrimonial proporcional”) at the capitalization plus a 12% annual interest, during the two years following the capitalization.

The Decree provides that the term of the statute of limitation and the discontinuance of legal actions in tax matters is suspended for one year for taxpayers that avail themselves of this capitalization.

The resolution to capitalize tax liabilities as well as a statement issued by the tax authorities declaring that a corporation owes no taxes entitle such corporations to:

a) The benefits described in point 6, below.

b) Receive assets not declared to the tax authorities before December 31, 2000 to capitalize the corporation in an amount equal to that capitalized by the Federal Government.

The taxpayer may also choose to contribute the amount of such undeclared assets to corporations that have a certificate issued by the tax authorities declaring that a corporation owes no taxes as of September 30, 2001 in an amount equal to the federal taxes paid by this corporation in the last five years.

6. Cancellation of debts with banks

Persons whose debts with banks are ranked 3, 4, 5 or 6 (non-performing or under performing) are authorized to pay them with public bonds at their technical value (apparently close to the nominal value) to the extent the tax authorities issue a certificate stating that such persons do not have outstanding tax liabilities as from September 30, 2001.

7. Value Added Tax provisions

The refund of VAT credits can be requested by exporters in US dollars at the exchange rate of the day in which the invoices were issued. This rule is also applicable to credits pending (i.e. still not refunded) on the date when the Decree was issued.

Taxpayers who sell movable assets or render services to the public are obliged to accept banking transfers implemented through debit cards as a mean of payment. The Minister of Economy is entitled to compensate the users of banking debit cards with up to 5% of the VAT corresponding to these transactions.

As from April 2003, VAT registered taxpayers will be entitled to use social security contributions paid as a credit against their VAT liability.

8. Court injunctions

If a court grants an injunction that affects, interrupts or frustrates the development of essential activities of an state entity, this entity may appeal directly to the Supreme Court of Justice (i.e. by-passing the relevant court of appeals).

The Supreme Court may reject the requirement or decide whether to accept the injunction or not.

9. Transfer of promissory notes and bank checks

Under Argentine Law, promissory notes and bank checks are generally transferable by endorsement, provided however that the issuer may specifically restrict such possibility including an express clause stating that they are not, in which case such documents will only be transferable by means of an ordinary assignment of credit that should be notified to the issuer-debtor.

The Decree, purportedly to foster the development of small and medium enterprises which usually collateralize their bank financing with this kind of documents, modifies the general regime explained above providing that promissory notes and bank checks will always be endorsable in favor of financial entities, whether or not the issuer has restricted such possibility

10. Tax amnesty

The Decree establishes a special regime of payment in installments of tax debts. Depending on the kind of debt, taxpayers can pay their unpaid taxes in up to 120 installments.

The Decree also provides for a waiver of payment of certain types of interest and fines, to the extent such interest and fines have not been paid before the date of publication of the Decree, and provided they correspond to obligations and violations due or performed up to September 30, 2001.

To be entitled to the waiver, taxpayers must:

a) have paid the principal and non-waived interest and fines, if any, before the publication of the Decree, or

b) have included such principal and non-waived interest and fines in a prior special regime of payment in installments to the extent such a regime is in effect, or

c) cancel such principal and non-waived interest and fines with cash or public bonds, or

d) include such principal and non-waived interest and fines in the special regime of payment in installments created by the Decree, described above.

11. Effect

The provisions of the Decree take effect as from the following day of the publication of the Decree in the Official Gazette (i.e., as from November 3, 2001). However, certain provisions, such as the obligation of using invoices of credit or the refund of VAT to individuals, require further regulations to become effective.