Government lifts the “corralón” (freezing of deposits)

The Argentine Government launched what it believes will be the final step of the process towards the liberation of deposits frozen in the financial system as of December 2001; this process had been initiated by Decree No 905/02, and continuedin September and October 2002 with Decree No 1836/02 and Decree No 2167/02.

Decree No 739/03, effective as of April 1, 2003, offers the owners of deposits originally denominated in U.S. Dollars (or other currencies), converted into Pesos by Decree No 214, whose maturity was extended by Resolution 6 of the Ministry of Economy, as amended, the ability to cancel the same through a mechanism that depends on the amount of the deposit involved.

Owners of rescheduled deposits or CEDROS (‘Certificados de Depósitos Reprogramados’) with an original amount of up to Ps. 42,000 (Series C, D, and E of CEDROS) can request the respective financial entity to cancel the deposits in whole or in part by means of crediting their technical value [balance of the rescheduled deposit adjusted by the ‘Coeficiente de Estabilización de Referencia’ (CER), plus interest] as of the payment date in a cash account, making the funds immediately available for them. The owners of rescheduled deposits or CEDROS that exceed such amount (Series F of CEDROS) and up to Ps. 100,000 can convert such rescheduled deposit or CEDRO in a new and free 90 day fixed-term deposit in the same financial entity, while for those rescheduled deposits or CEDROS with an original amount of more than Ps. 100.000, the term of the new fixed-term deposit will be 120 days.

Financial entities can improve the offers to the depositors described above, by means of, inter alia: (i) reducing the term of the new deposit, (ii) crediting the amounts, in whole or in part, in cash accounts, and (iii) recognizing higher revenues provided that the interest rate is applied on the principal restated by CER. The financial entities with outstanding financings granted by the Argentine Central Bank (‘adelantos y redescuentos’) shall cancel part of such financings on the basis of the new improved offer granted to the depositors.

In all cases the depositors that exercise any of the options provided under Decree No 739/03 will additionally receive Government Bonds “Bonos del Gobierno Nacional en Dólares Estadounidenses 2013” for the difference between the nominal value of the rescheduled deposit or CEDRO, adjusted by the CER as of April 1, 2003, and the reference exchange rate informed by the Central Bank on such date (US$ 1 = Ps. 2.9792). For the purposes of calculating the nominal value of the bonds, the result from such difference will be converted into Dollars at the same exchange rate.

Decree No 739/03 also grants the owners of deposits or CEDROS originally denominated in Pesos, whose maturity was also extended, the ability to request their early cancellation in total or in part with the corresponding financial entity. This would credit the relevant amounts in cash accounts, making them immediately available for the depositors.

With respect to investment funds with portfolios formed (in whole or in part) with rescheduled deposits or CEDROS, the holders of the quotas can exercise the option through the corresponding manager of the fund. The Argentine Securities Commission (Resolution No 440) set forth that the managers of the funds should inform the option to the holders of the quotas of the relevant funds by advertising in the mass media or by attesting notices by April 8 at the latest.

The offer is also extended to owners of deposits originally denominated in a foreign currency who had initiated legal actions (still pending resolution) against the regulations in force applicable to deposits in the financial system. In such cases, the depositor that exercises the option by crediting the amounts in a cash account or by making a fixed term deposit, receives the “difference” between the original amount of the deposit converted into Pesos, adjusted by CER, plus interest, and the amounts received under the injunction (if received in the original currency, the exchange rate informed by the Central Bank will be applicable). They will also receive Government Bonds “Bonos del Gobierno Nacional en Dólares Estadounidenses 2013” by applying the general mechanism (see above). For the purposes of calculating the nominal residual amount, the amounts received under the injunction are not considered. If the difference between the value of the deposit and the amounts received is negative, in order to be able to obtain Bonds 2013, the depositor is required to reimburse the financial entity of the amounts received in excess.

The initial term for the exercise of the option provided under Decree No 739/03 and implementing regulations elapsed on April 23, 2003. The Ministry of Economy renewed the term until May 23 with Resolution No 290/03 dated April 23, so that depositors would have enough time to analyze the alternatives provided thereunder. One of the main reasons for extending the term may have been the depositors’ limited adhesion to the option. According to public information based on the monetary report prepared daily by the Central Bank, during the first week only 13% of the deposits frozen in the “corralón” exercised the newly available option.