Foreign Exchange Controls In Argentina

1. General overview

   In December 2001 and after over ten years of economic deregulation, the Central Bank of the Republic of Argentina (the "Central Bank") imposed very tight exchange controls. As from the end of the year 2002, the Central Bank has gradually loosened some restrictions until October 2011, when it started to strengthen the restrictions again as consequence of the global economic crisis and the depletion of its foreign exchange reserves. Currently, foreign exchange restrictions are not only imposed by the Central Bank but, in practice, also by the Argentine Tax Authority, through tax regulations. Foreign exchange and tax related regulations are very detailed and specific and are being modified very often. Notwithstanding the regulatory foreign exchange and tax, in addition, since October 2011, foreign exchange transactions have been generally subject to de-facto restrictions, preventing local financial entities or exchange houses from processing operations of their clients that would otherwise be authorized pursuant to regulations. Under this scenario, please note that the following is a general description and that is limited to the regulations currently in effect.

2. Foreign exchange restrictions

   2.1. Supply and demand of foreign currency

   Under the rules currently in force, Argentine exporters, service providers and loan borrowers have the obligation to transfer to Argentina foreign currency proceeds of such transactions with non-Argentine residents, or funds the disbursed abroad and to sell them in the Argentine exchange market. Through these obligations, the government is trying to ensure the supply of foreign currency in the foreign exchange market.

   Besides, under the rules currently in force, Argentine residents are only allowed to buy foreign currency and to transfer it abroad if they are part of a cross-border transaction. The regulations contain a list of items regarded by the Central Bank as falling within the scope of cross-border transactions and establish specific requirements for each item. In general, cross-border transactions include transactions performed between Argentine and non-Argentine residents (e.g. import of goods or services, payment of dividends to foreign shareholders, etc.). Moreover, Argentine residents are rarely allowed to buy foreign currency to keep it outside Argentina or within the country with accumulation or saving purposes. Finally, non-Argentine residents are allowed to buy foreign currency in order to repatriate their investments subject to the prior compliance of a number of requirements. By this way, the government is intending to curtail the demand of foreign currency in the foreign exchange market.

   The exchange rate in the foreign exchange market is determined for the supply and the demand of foreign exchange currency. This notwithstanding, the Central Bank not only intervenes in the market by establishing the obligation to sell the foreign currency and curtailing the ability to buy it, but also by selling and purchasing foreign currency by its own account.

   Below follows a summary of the main requirements applicable to the inflows and outflows of foreign exchange market.

   2.2. Inflows of funds through the Foreign Exchange Market

   Exports:Argentine exporters are obliged to bring into Argentina and exchange for Argentine pesos the export proceeds within certain time frame which varies depending on the exported merchandise (in general between 30 and 365 days), since each tariff position in the nomenclature schedule has a different term. An extension of the term can be requested by the exporter and granted by the authorities in special cases. In principle, the terms and their eventual extensions are only applicable to exports made as consequence of sales made between independent parties, since in the case of sales made between related companies exporters are obliged to bring and exchange the export proceeds in 30 business days. Oil, gas and mining importers which have formerly been granted with partial or total exceptions are currently obliged to repatriate all their export proceeds. Services: Argentine residents that provide services to non-Argentine residents are also obliged to bring into Argentina and sell in the foreign exchange market the amount in foreign currency collected for consideration of the services. c)Financings:Argentine borrowers that receive...