Rules regarding exceptions to C.E.R. application

1. Introduction

As from the entry into force of Law No. 25,561 and Decree No. 214/2002 , as supplemented, the Federal Government decided to implement the so called Coeficiente de Estabilización de Referencia (Reference Stabilization Ratio “CER”) to adjust the value of “pesified” debts for inflation.

As previously mentioned , the significant inflation of the first five months of the year forced the Government to look for alternatives for the adjustment mechanism that were embodied in Decree No. 762/2002 .

This article is not intended to cover all the aspects in connection with the interpretation of the adjustment of the obligations to provide monetary sums, but to highlight certain issues that might be of interest.

2. Decree No. 762/2002

The Decree sets forth certain exceptions to the application of the C.E.R., where such ratio would be replaced by the Coeficiente de Variación de Salarios (Wage Variation Ratio or “C.V.S.”), to be calculated and published on a monthly basis by the INDEC.

The exceptions that will not be applied the CER are the following:

a- Loans granted to individuals by financial institutions, cooperative associations, mutual benefit associations or individuals or legal persons of any nature in the following cases:

(i) loans secured by mortgages on the single family and permanently occupied housing unit;
(ii) personal loans, whether or not secured by mortgages not included in (i) up to the amount of Pesos 12,000; and
(iii) personal loans secured by pledges up to the amount of Pesos 30,000.

b- Leases: leases of real property where the lessee is an individual and the property will be used as the single family and permanently occupied housing unit.

The C.V.S. will be applied as from October 1, 2002. Up to that moment there will be no adjustments whatsoever.

3. Decree No. 1242/2002

On July 15, 2002, Decree No. 1242/2002 for the Reorganization of the Financial System -regulating the application of Decree No. 762/2002- was published in the Official Gazette.

It fixes the scope for the inclusion of loans within the provisions of Decree No. 762/2002, by means of a wide interpretation covering all obligations in foreign currency that have been restructured under Law No. 25,561, and sets forth the application of the provisions of Decree No. 1242/2002 to the leases included in Section 2 of Decree No. 762/2002, if applicable. It sets forth that where payments for a certain period of the lease have to be made in advance, the C.V.S. for the immediately preceding period equivalent to the current period will be applied.

In order to qualify for the exceptions set forth in Decree No. 762/2002, the debtor shall prove the condition of “single family and permanently occupied housing unit” of the property, unless it can be derived from the loan agreement, the preliminary sales agreement, the title deed or the deed whereby the mortgage was created. Such evidence shall be provided on the effective date of Decree No. 762/2002 by means of a certified affidavit or any other proper evidence.

The creditor, on its part, shall give notice to the debtor by a reliable method of:

(i) the acceptance of the condition referred to in the preceding paragraph;

(ii) the interest rate applicable as from October 1, 2002. Such rate will be the rate agreed in the original agreement in force as of February 2, 2002, unless it is higher than the average of the rates in force in the financial system, as informed by the Central Bank, during the year 2001, in which case the latter will be applied. This provision regarding interest rates will not be applicable to the obligations to provide monetary sums denominated in U.S. Dollars or in other foreign currencies not related to the financial system, whatever their nature or origin; and

(iii) the resulting changes to the principal amount of the loan, the payment obligations and the acts to be executed in that respect.

If payments have been received including amounts resulting from the application of the C.E.R., same shall be allocated to the cancellation of subsequent installments, and if there are no more installments, they shall be credited in an account in the name of the debtor.

Finally, it sets forth the method to calculate the C.V.S., which will be based on the comparison of the monthly variation of wages in the subsequent months, both of the public and the private sector.