Argentina Relaxes Exchange Controls

Argentina Relaxes Exchange Controls

April 01, 2003
By Aruna Spencer, Diego Serrano Redonnet and Fernando Zoppi
New Argentine central bank regulations relax some of the foreign exchange controls that were instituted by the Argentine government at the end of 2001 and early 2002 to address the country’s economic crisis.  Under these exchange controls, most of which are still in effect, transfers of foreign currency outside of Argentina require central bank authorization, with certain exceptions.

The new central bank regulations, issued during the first quarter of 2003, broaden these exceptions, among other things, to allow the payment of corporate profits and dividends and to ease the restrictions on debt repayment to foreign lenders.

In addition, the new regulations provide a termination date of August 8, 2003 for many of the transfer restrictions.

The central bank foreign exchange regulations issued since December of 2001 have been numerous and complex.  Moreover, some regulations have expired by their own terms, some short-term regulations have been extended and other regulations have been repealed or amended.  At the present time, the cumulative impact of these regulations on the ability of Argentine entities to remit foreign currency outside of Argentina to repay debt or pay dividends prior to August 8, 2003 can be generally understood in the framework set forth below.

Principal Payments

Payments of principal in foreign currency to foreign lenders require central bank authorization unless the loan falls into one of the following seven exceptions:

1   The loan was disbursed and brought into the local financial system after February 11, 2002.

2   The loan was made by an international organization or by banks participating in transactions co-financed by an international organization.

3   The loan was made or guaranteed by an official credit agency or export credit insurance company that is a member of the International Union of Credit and Investment Insurers.

4   The loan was made or guaranteed by a multilateral credit organization of which Argentina is a member or that is party to an agreement affording “most favored nation”-type protections to the multilateral credit organization.

5   The loan was restructured and the restructuring was approved by a court or was effected in accordance with central bank guidelines.  A restructuring complies with the central bank guidelines only if it satisfies four tests.  First, the restructuring must be evidenced by a restructuring agreement executed after January 2, 2003.  Second, it cannot provide for payment of more than 10% of the outstanding principal at the date of execution of the restructuring agreement, more than another 5% of the outstanding principal within the first six months after signing, or more than another 5% in the following six months.  Third, the restructured principal must have an average life that is at least five years longer than in the original loan.  Finally, the restructured debt must involve notes, bonds or commercial paper, a foreign bank syndicated loan, a foreign bank loan that is not secured by the offshore assets of the debtor or another Argentine entity, or an intercompany loan by an affiliate outside Argentina.

In addition, if before principal is repaid under the existing loan, the local borrower refinances the debt on or after December 26, 2002 through the foreign exchange market and this new financing has an average life of at least five years and is for an amount equal to at least the amount of the original loan, then the conditions in this “restructuring exception” will be deemed met.  Therefore, no prior authorization of the central bank will be required.

6   The payment is overdue and the principal amount to be repaid does not exceed US$1 million a month. (This threshold reflects a March 13, 2003 increase by the central bank in the permitted monthly payment, which previously was only US$150,000.) The borrower must make a sworn statement that the repayment complies this rule.

7   The payment is overdue and relates to an obligation that did not exceed US$5 million on December 31, 2001, including both overdue and outstanding principal installments. (This threshold reflects a March 27, 2003 increase by the central bank from the previous threshold of only US$3 million.)

Interest Payments

Under a new central bank regulation issued on March 13, 2003, payments of interest in foreign currency to foreign lenders must be authorized by the central bank unless the payment is made no earlier than 15 days before the due date for the amount.  Before this new regulation, a borrower had to wait until three days before the due date to make an interest payment.  Certain other ministerial requirements may apply, such as verifications that the payments relate to genuine debt, but the existing regulations do not provide detailed information about all of these requirements.


One of the more significant changes in the exchange controls, effected by a central bank regulation issued January 7, 2003, is the elimination of the restrictions on corporate profits and dividends payable by Argentine entities to entities outside of Argentina.  Argentine entities may now freely purchase foreign currency and transfer it outside Argentina as corporate profits or dividends to the extent such payments are supported by audited financial statements.


Most of the exceptions to the general requirement of central bank authorization for transfers of foreign currency outside Argentina already existed before 2003.  While the removal of restrictions on corporate profits and dividends is important for foreign shareholders, the changes to the restrictions on debt repayment provide limited relief to foreign creditors.  Further, despite a February 2003 central bank regulation providing that many of the exchange controls implemented since December 2001 will be lifted on August 8, 2003, there can be no certainty that this termination date will not be extended.

Although the impact of the new regulations may not be dramatic in comparison to the continuing effects of the sweeping foreign exchange restrictions and emergency legislation previously enacted by the Argentine government, the new regulations, implemented in response to international pressures to normalize the country’s financial system, may presage future regulations that eliminate other exchange controls with potentially greater import for foreign investors.