On September 1, 2019, the Argentine Government announced a “temporary” clamp on foreign exchange transactions and remittances in a move to stop capital flight in the wake of an electoral primary that signaled an extremely likely end to the Macri administration and a return to power of former president, Cristina Fernández de Kirchner (this time as vice president). While ostensibly temporary (the measures are scheduled to expire on December 31), the delicate state of the economy and historical precedent suggest these and perhaps other controls will continue in place no matter who occupies the Pink House on December 10.
We have put together this quick guide on the relevant rules and regulations as of October 25, 2019. But stay tuned. On Sunday, October 29, we have our first round of elections and this regulatory landscape may change quickly. We will keep you informed.
General Rules
1. Natural persons (but not legal entities) may purchase up to US$10,000 per month (or equivalent) for savings without Central Bank approval.
2. Other than payment of imports, nearly all outbound cross-border remittances of foreign currency also require prior approval by the Central Bank.
3. Almost all proceeds from sales of goods or services to non-residents must be repatriated to Argentina within a specified time, depending on the type of transaction. These proceeds must be routed through a licensed financial institution and are (except in some limited exceptions) automatically converted into pesos.
4. Argentine residents may only acquire foreign currency through licensed financial institutions (banks and exchange houses or the “Official FX Market”).
5. Argentine residents may not acquire foreign currency on the Official FX Market to repay debt owed to another Argentine resident, if that debt arose after September 1.
6. Use of foreign currency held by a resident in Argentina or abroad as of September 1 (as proved by bank deposit or tax returns) remains unrestricted.
7. Any violation of these preceding rules is a crime punishable by fines and imprisonment. If the violator is a legal entity, enforcement actions may be brought against the directors, employees and officers of that entity, as well as any financial intermediaries (e.g., banks, broker-dealers, or exchange houses) involved in an unlawful transaction.
With these general rules in mind, let us take a closer look on specific types of transactions and relevant restrictions:
Argentine residents are required to timely repatriate and convert into pesos at the Official FX Market the foreign currency proceeds from the export of goods and services. For exported goods, the deadline depends on the product and whether the purchaser is a related party.
· If the export was approved by customs after September 2, the time ranges 15 to 180 days. As a narrow exception, exports qualified as a “simple export” for small businesses have up to 365 days. In any event, the exporter must repatriate to the Official FX Market within five business days of payment.
· If the export was approved by customs on or before September 2, the deadline is five business days of actual payment, regardless of when that may occur.
· Proceeds from exported goods used to repay pre-export financing by a foreign creditor need not be repatriated, subject to certain requirements.
· Certain exceptions apply to the repatriation of export proceeds used to pay for imported goods and services.
For the export of services, the rule is simpler. Proceeds from exported services must be repatriated to the Official FX Market within five business days of payment.
Disbursements to an Argentine borrower made on or after September 1 are not required to be repatriated to the Official FX Market but the borrower must show the loan proceeds were brought onshore as a condition to acquiring foreign currency to service principal or interest on the cross-border loan.
Repayment and Prepayment of Cross-Border Loans
Argentine resident borrowers do not need Central Bank approval to acquire foreign currency to service a cross-border loan so long as the following requirements are met:
· The obligation is paid according to schedule. Early repayment requires Central Bank approval (subject to a few exceptions).
· For cross-border loans made after September 1, the borrower must show that it has brought the loan proceeds onshore.
· The debt has been timely reported in the disclosure of the liability(s) report with the Central Bank. (See “Disclosure Statement of Foreign Assets and Liabilities” further below.)
Capitalization; Purchase of Equity
Capitalization by a foreign shareholder or the purchase of equity by a foreign person are remain unrestricted. This means inbound funds to capitalize a company or the proceeds paid to purchase shares of a company do not need to be repatriated and paid into the Official FX Market within a specified time.
Goods and Services
Subject to a few exceptions (e.g., prepayment of imported goods and services or to pay for imported services performed by a related party), Argentine residents are not required to obtain Central Bank approval to purchase foreign currency to pay for imported goods and services.
The cross-border payment by an Argentine company of distributions or dividends requires prior approval by the Central Bank. For now, this really means forgettaboutit.
Related Party Transactions
Central Bank approval is required to acquire foreign currency to pay for:
· Any import transactions between related parties pending as of September 1 if the import value is greater than US$2 million for any month; or
· Any import services of any value performed by a related party.
Disclosure Statement of Foreign Assets and Liabilities
Argentine residents must file a disclosure statement with the Central Bank of all foreign assets and liabilities for the preceding calendar year. The frequency of this reporting varies depending on the totals of these assets and liabilities.
Blue Chip Swap
The above-described restrictions create a “cash trap” for companies generating excess cash from operations. Unable to acquire foreign currency to remit a dividend, to pay for intercompany services, or to hedge against rampant inflation (running around 55% annually if measured in local currency), many companies turn to a time-tested alternative: the Blue Chip Swap.
The Blue Chip Swap (or “Contado con liqui” (cash against settlement)) is a mechanism that appears in times of currency controls. It involves the purchase and sale of dollar-denominated sovereign or corporate securities to move currency in and out of Argentina. For outbound transfers (e.g., moving currency from Argentina to a foreign destination), the process begins with a company’s purchase with pesos through a registered broker of securities that trade outside Argentina in U.S. dollars. The buyer instructs the broker to transfer the securities to a foreign broker, which sells the securities abroad and transfers the U.S. dollar proceeds to whomever the buyer instructs.
As of today, the Central Bank has not restricted the Blue Chip Swap for legal entities (for natural persons, there is a cooling-off period before the sale can be made). The reason for this is likely because the Blue Chip Swap, as a transaction between private parties, does not affect the government reserves, which current government policy seeks to protect. The downside of the Swap is that the exchange rate is much higher than the official exchange rate. As of today, the spread is about 30%.
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For more information on foreign exchange regulations and Central Bank compliance, please contact Mariela del Carmen Caparrós ([email protected]) or Magdalena Podio ([email protected]).
The foregoing article is a description of publicly available information and is not intended as legal advice or as a comprehensive analysis of the matters referred to herein.