Law No 25,820 extends the term of public emergency

The most important provision in Law No 25,820 is the one that extends the public emergency until December 31, 2004. The original term expired on December 10, 2003.

Additionally, Law No 25,820, like other laws before it, grants law status to certain provisions of Decree No 214/02. Accordingly, it tends to reconcile the different regulations concerning private sector obligations not related to the financial system. Decree No 214/02 has not been expressly ratified by law. However, it has been a matter of discussion whether it has been implicitly ratified or even if its ratification is not necessary.

1.      Public emergency extension

The extension of the public emergency until December 31, 2004 implies, inter alia, that (i) the Executive Branch continues to have delegated powers, including the power to modify rules applicable to obligations related to the financial system; and (ii) the effects of Law No 25,466, that established the intangibility of deposits, continue to be suspended.

The extension does not include the double compensation for non-justified labor dismissal nor the suspension of capital loss as a cause of dissolution of companies. The first issue is regulated by Decree No 256/03. The regulation of the second issue is still pending.

2.      Selective “pesification” of credits granted by financial institutions

Law No 25,820 revokes the second paragraph of Article 6 of Law No 25,561, which established a selective “pesification” for debts with the financial system of up to US$ 100,000. Those debts were “pesified” at the rate of AR$ 1 = US$ 1, without the application of the inflation adjustment rate (“CER”) nor the salary adjustment rate (“CVS”).

With that amendment, Law No 25,820 removes the contradiction that existed between the second paragraph of Article 6 of Law No 25,561, Law No 25,713 and Decree No 214/02.

3.      Deposit conservation

The amendment adds a final phrase to Article 6 of Law No 25,561, stating that the Executive Branch is empowered to implement the conservation of deposits subject to Decree No 1570/01 through public bonds exchange options.

It seems that the new wording refers to future exchange options, because the previous exchange options (established by Decrees No 905/02, 1836/02, 2167/02 and 739/03) have been ratified by Law No 25,827 (the Budget Law), that has been already passed by Congress but not yet promulgated.

In that way, the “pesification” of deposits remains on the same track established by the previous exchange option decrees, emphasizing the possibility of granting the depositors exchange options for the difference between the “pesified” deposit and the original deposit in foreign currency.

4.      Private sector obligations between individuals not related to the financial system

Two different regulations existed concerning these obligations, Article 11 of Law No 25,561 and Article 8 of Decree No 214/02. It was not clear whether these regulations complemented each other, were independent or consecutive.

The previous wording of Article 11 of Law No 25,561 established two main principles: joint efforts (in accordance with Article 1198 and related articles of the Civil Code) and partial payments. On the other hand, Article 8 of Decree No 214/02 had as principles: “pesification” subject to adjustment and the continuation of the contractual relation.

In order to reconcile these differences, Article 11 of Law No 25,561, as amended, “pesifies” the obligations between individuals not related to the financial system at the rate of AR$ 1 = US$ 1, plus the application of CER (that is applicable until April 1, 2004, as established by Law No 25,796), CVS or any other index to be later established.

The new wording maintains the principle of joint effort and states that the “pesified” obligations can be subject to later adjustment. Additionally, the amendment establishes that the creditor cannot refuse to accept partial payment.

There are contradictory rulings concerning the application of “pesification” and delinquency. In that sense, the amendment states that the obligations are “pesified” whether or not there was any delinquency at the date established by Law No 25,561. However, there is no certainty over how will future rulings apply this provision.

Now, Article 11 of Law No 25,561, as amended, establishes that if a party is in arrears it may not request adjustment. This last provision was originally included in Decree No 214/02.

Law No 25,820 states that the “pesification” applies to the obligations that “existed” before January 6, 2002. There was a controversy over this date, because the provisions of Decree No 214/02 apply as from February 3, 2002, causing doubts over the treatment of obligations between January 6, 2002, and February 3, 2002. However, there is no regulation that establishes the application of CER before February 3, 2002, nor the result of its calculation in that period of time (positive or negative).

Finally, the new wording of Article 11 of Law No 25,561 states that: “this provision does not modify the cases already resolved by private agreements and/or courts”. Nevertheless, it does not specify if the provisions apply to final court rulings or not.

5.      Conclusion

Law No 25,820, in addition to extending the term of the public emergency, introduces to Law No 25,561 provisions from Decree No 214/02 that were not included in any other law. It also tends to reconcile the differences between the existing regulations.

However, there is a paradox. Law No 25,820 adds to Law No 25,561 the provisions of Article 8 of Decree No 214/02 but does not revoke those provisions from such Decree No 214/02. Accordingly, it is not clear the status of the explanatory provisions included in Decree No 320/02 nor the exceptions to “pesification” included in Decree No 410/02, neither of which were ratified by law (in this matter, please refer to the comments above on ratification of decrees).