New foreign exchange regulations were recently introduced in
Colombia and a regulation project intended to facilitate foreign
investment in the country is pending.
Foreign exchange regulation
Resolution 8 of 2000 sets out the new regulation regarding foreign
exchange, replacing Resolution 21 of 1993. Among the most important
changes introduced by Resolution 8 are the following:
- Intermediaries of the foreign exchange
market
(intermediarios del mercado
cambiario). Financial cooperatives (cooperativas
financieras) and stock broker companies have been enabled
to operate as intermediaries of the foreign exchange market.
With regards to financial cooperatives, those with an amount of
paid-in capital and reserves exceeding the minimum required by
credited financial corporation are granted broader faculties
than those with a paid-in capital and legal reserve below the
minimum requirement. These companies may carry out the same
transactions as stock broker companies with a net worth that
exceeds Ps3.5 billion ($1.6 million). The transactions allowed
for foreign exchange bureaux (casas de cambio) - which
were already considered as intermediaries of the foreign
exchange market under Resolution 21 - have been broadened. The
recently issued Resolution 9 of 2000 eliminated the powers of
foreign exchange bureaux to manage and administer systems of
international credit and debit cards systems. In addition,
savings and loan housing corporations (corporaciones de
ahorro y vivienda) are no longer authorized to act as
foreign exchange intermediaries.
- Derivative transactions. Resolution 21
authorized residents to perform basic product hedging
transactions, dollar-to-other currency hedging transactions
and, on the other hand, to perform dollar-to-peso futures
transactions. Resolution 8 clarifies these derivative
transactions by authorizing residents, with the exception of
foreign exchange market intermediaries, to execute basic
product derivatives and financial derivatives transactions. The
purpose of the new regulation is to make derivatives
transactions more flexible. Resolution 8, for example, does not
require residents who intend to carry out hedging transactions
to be involved in activities which involve a variation risk in
the basic product prices.
- Hydrocarbons. Resolution 21 set out a
special regime to which the following entities could decide to
be subject to: (i) companies with foreign capital dedicated to
the exploration and exploitation of oil and natural gas; and
(ii) branches of foreign companies involved in oil, natural
gas, carbon, ferronickel (ferroniquel) or uranium operations.
In other words, only companies with foreign capital which were
involved in oil and natural gas exploration and exploitation
could choose to be subject to the special regime, pursuant to
which they would not be obliged to redeem currencies raised
from sales made in foreign currencies. Resolution 8 extends
this special regime to companies with foreign capital
(including companies with any percentage of foreign capital
participation) and branches involved in carbon, ferronickel and
uranium operations.
- Head offices and branches. Under
Resolution 21, branches of foreign companies were not allowed
to reimburse their overseas head offices with the revenue from
imports. Imported goods therefore had to be sent to the
branches' "assigned capital" or "supplementary capital"
accounts. Resolution 8 allows branches to pay their head
offices for every import. It is no longer necessary to account
for the value of such goods in the capital accounts.
- Currency sale-purchase. Resolution 21
prohibited individuals from being involved in the sale or
purchase of currency. Resolution 8 authorizes residents to do
so on a professional basis, the only condition being that they
join the trade registry. It is important to note that this
authorization applies to the sale-purchase of currency on the
free market, because the currency which must be channeled
through the foreign exchange market must be purchased or sold
through authorized intermediaries of the foreign exchange
market, or through the compensation account mechanism.
Reform of the foreign investment statute
In accordance with the National Development Plan, and taking into
account the importance of promoting foreign investment in Colombia
for the purpose of reactivating the economy, the Council of
Economic and Social Politics (CONPES) recently approved the
issuance of a regulation project containing a new foreign
investment statute. This statute would adopt a series of changes to
foreign investment regulation in order to provide more reliability
to foreign investors. It would also simplify and facilitate
understanding of the regulation in force at present, maintaining
the essential principles of foreign investment in Colombia such as
universality, automaticity and equality in treatment.
According to the regulation project, the new statute basically
incorporates the following changes to foreign investment
regulation:
- A new form of direct foreign investment is included,
consisting of the acquisition of fiduciary rights that derive
from trusts established by fiduciary contracts as a form of
developing an enterprise, increasing the spectrum of entities
that may be subject to foreign investment.
- Regarding portfolio foreign investments, limitations on the
acquisition of shares with voting rights by a fund (which
corresponded to 40% in omnibus funds and 10% in other funds)
were abolished, giving funds more options in the management of
their portfolio investments.
- The definition of individual funds was introduced to
portfolio investments.
- The requirements needed for investment funds to obtain
authorization to operate in Colombia were reduced and
simplified, leaving only the automatic authorization as a
mechanism of authorization. In addition, an electronic format
for the presentation of information required by the
Superintendent of Securities was established.
- The prohibition was abolished under which local
administrators of investment funds could not perform functions
in various funds simultaneously unless they had acquired both
the previous consent of the foreign administrator or legal
representative and the authorization of the Superintendency of
Securities.
- The management of Colombian investments abroad will have a
similar structure as that applied to foreign investments in
Colombia.
- Terms used in other legal dispositions related to foreign
investment are unified, and unnecessary references to specific
dispositions are eliminated in order to facilitate
understanding.
Jean Pierre Lenaerts