Government Tries to 'Pesify' a Way Out of Crisis

In an attempt to overcome the deepest social, economic and political crisis in the recent history of Argentina, the government has issued numerous laws, decrees, resolutions and other regulations.

This update describes and summarizes some of these regulations.

Devaluation

Emergency Law 25,651 abrogated the convertibility principle, reflecting the abandonment of the 11-year peg to the US dollar set forth in the Convertibility Law.

Pesification

All US dollar or foreign currency denominated debts that existed as of January 6 2002 were converted into peso-denominated debts.

The Emergency Law provides that the possibility of entering into agreements denominated in foreign currency in accordance with Sections 617 to 619 of the Civil Code is still available.

Exceptions
The following cases are not included in the mandatory conversion into pesos:

• foreign trade financings granted by financial institutions, subject to the conditions laid down by the Central Bank of Argentina;
  
  
• credit card balances corresponding to expenses incurred in foreign countries;
  
  
• deposits in local financial institutions made by foreign banks or financial institutions, provided that they are transformed into credit facilities maintained and effectively applied for a minimum term of four years, pursuant to the regulations set forth by the Central Bank;
  
  
• the obligations of the public and private sectors for providing amounts in foreign currency subject to foreign laws;
  
  
• the redemption of shares in duly authorized mutual funds, in respect of the proportion of the common property invested in foreign assets which may be effectively and normally sold and liquidated abroad in US dollars or in other foreign currencies; and
  
  
• the obligations of providing amounts in foreign currencies incurred by persons or entities based in a foreign country, paid with amounts coming from abroad, even in cases in which Argentine law is applicable.

Further to an amendment that came into force on June 12 2002, futures and options (including those registered in self-regulated markets and the accounts exclusively used for the operation of those markets) are excepted from the mandatory conversion into pesos unless the agreement was entered into before January 5 2002, one of the parties is a financial entity and Argentine law is applicable.

Bank Deposits

All US dollar or foreign currency deposits in financial institutions are converted into pesos at the rate of $1 to Ps1.4.

There are restrictions relating to the withdrawal of deposits and transfers (commonly known as corralito) for both deposits in pesos and deposits in US dollars which have been 'pesified'. However, holders may elect to receive bonds in either US dollars or pesos, depending on the original currency of their deposits.

Financial Debts

US dollar or foreign currency denominated debts with financial entities are converted into pesos at the rate of $1 to Ps1.

Private Non-financial Obligations

All US dollar or foreign currency denominated debts between private parties other than financial entities shall be converted into pesos at the rate of $1 to Ps1. If one of the parties considers that the price in pesos does not reflect the value of the assets, goods or services, the party may claim a price adjustment.

Indexation

'Pesified' debts shall be periodically adjusted by the Reference Stabilization Ratio, which is published every month by the Central Bank or the Salary Variation Ratio published by the National Institute of Statistics.

Apart from the adjustment of the pesified obligations, no monetary adjustments or indexation of prices, debts, taxes or tariffs of services, goods or works may be agreed or applied.

Agreements with Public Entities

Any clauses in contracts entered into with government agencies, including those affecting public works and services, that provide mechanisms of adjustment in US dollars or in other foreign currency, or are based on price indexes of other countries, or any other similar mechanism of indexation are deemed without effect. Prices and tariffs shall henceforth be denominated in pesos at the rate of 1:1.

The Executive Power has the authority to renegotiate these contracts. In no case shall the companies or service providers suspend or in any way alter the compliance of their obligations.

For further information on this topic please contact Gabriel G Matarasso at Marval, O'Farrell & Mairal by telephone (+54 11 4310 0100) or by fax (+ 54 11 4310 0200) or by email ([email protected]). The Marval, O'Farrell & Mairal website can be accessed at www.marval.com.ar.

aspx">disclaimer