On January 22 2003 the government ordered the Central Bank to cease the sale of foreign currency to financial institutions. On February 5 the government issued the first of several regulations establishing a new currency control regime to be administered by the newly created Commission for the Administration of Foreign Exchange (CADIVI).
The government has been slow to issue all of the regulations necessary to implement the new system. However, some preliminary regulations are now in place and the government has given an indication as to how the system will be administered in relation to some, if not most, franchises. Key regulations affecting the franchise sector are outlined below.
On February 7 CADIVI issued Regulation 1 establishing the procedure for accessing foreign currency at the official exchange rate for the import of goods and services. The Central Bank will establish the amount of foreign currency that is to be made available on a monthly basis (for March the amount was set at $647 million). CADIVI will determine the types of goods and services that will be considered to be priority items. Unfortunately, the services of most franchisees are not expected to be categorized as such.
Preferential treatment is expected to be given to private sector entities that sympathize with the government's aims, and that took no active part in the recent anti-government strike. The country's president, who will have overall control of the system, has made no secret of his intention to apply political criteria to the administration of foreign currency.
Exchange Agreement 1, issued on February 5 and republished on February 27, establishes the basic procedure regarding the acquisition of foreign currency by foreign investors and their licensees. The first requirement is that all foreign investors and licensees register with the appropriate foreign investment and technology control entity. In the case of most franchise operations, this will be the Superintendency of Foreign Investment (SIEX), an agency of the Ministry of Finance.
Once registered, foreign investors and licensees must apply to their respective control agency for authorization to repatriate capital, remit earnings and pay royalties or other fees.
For further information on this topic please contact John R Pate or Rene De Sola Q at De Sola & Pate by telephone (+58 212 793 9898) or by fax (+58 212 793 9403) or by email ([email protected] or [email protected]).