New Requirements for Issuance of Sovereign Bonds Governed by Foreign Law and for Future IMF Loans

On March 3, 2021, Law No. 27,612 on Strengthening Public Debt Sustainability, passed by the Argentine Congress on February 11, 2021, was published in the Official Gazette. The new law provides additional requirements to those already set forth for public credit transactions under Financial Administration Law No. 24,156, as amended (Ley de Administración Financiera or LAF; after its Spanish acronym).

 

1. Cap on the issuance of sovereign bonds denominated in foreign currency and governed by foreign law and jurisdiction

 

The new law provides that each fiscal year’s budget law must provide a maximum authorized percentage covering the total amount authorized for that fiscal year for the issuance of sovereign bonds denominated in foreign currency and governed by foreign law and jurisdiction.

 

If a particular issuance exceeds the percentage provided in the budget law, a special law passed by the Argentine Congress will be required to expressly authorize it.

 

2. Special Statutory Approval for IMF Financial Programming

 

Future IMF financial programming or loans, and their potential extensions, require express congressional statutory approval.

 

3. Use of Proceeds

 

The new law governs the use of proceeds from these financings (that is, the use of funds obtained by issuing bonds denominated in foreign currency and governed by foreign law and jurisdiction, as well as IMF loans). These proceeds cannot be used to finance current primary expenditures, as defined under the Economic Classification of Expenditures (Clasificador Económico del Gasto), except if extraordinary expenditures are required because of epidemics, floods, earthquakes or other force majeure events (in accordance with Article 39 LAF).

 

4. Closing Remarks

 

Among other requirements, Article 60 LAF already provided that all public debt (internal or external) issued by the Argentine government had to be approved either in that year’s national budget law or by a special law. Consequently, the main innovations in the new law are its yearly caps on sovereign debt issuance, the need for the special law in the specific cases mentioned above, and restrictions on the use of proceeds from these types of financings.