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Changes on the foreign exchange market

Sebastián SolerJuan Diehl Moreno

The Central Bank's Communication A 5085 imposed, as of June 8 2010, significant changes to Argentine residents' access to the Argentine foreign exchange market (FX Market) for the purchase of external assets (commonly referred to as atesoramiento or investment). These changes include the following:

  • For trusts, only those formed by contributions from the national public sector retain the right to buy foreign currency in the FX Market for investment without prior Central Bank approval. Other trusts – including those formed by contributions from the private sector and the public provincial, municipal and/or mixed sectors – require the Central Bank's prior approval. The only time these trusts don't require prior approval is if the foreign currency is used to purchase an initial offering of securities denominated in a foreign currency issued by the national government.
  • Mutual funds are allowed to purchase foreign currency in the FX Market without prior Central Bank approval if (i) it is to pay for the redemption in Argentina of fund shares by non-financial sector clients, and (ii) they have previously transferred into Argentina foreign currency at least in the same amount. In addition, due to the elimination of the investment concepts "portfolio investments of mutual funds" and "cash purchases of mutual funds" from the legal framework, mutual funds can no longer buy foreign currency in the FX Market for no specific purpose without prior Central Bank approval.
  • The ambiguous text of Communication A 5085, which gives "legal entities incorporated in Argentina" the right to purchase foreign currency in the FX Market for investment, initially created uncertainty. This wording could be construed as forbidding purchases by local branches of foreign companies because those branches are not incorporated in Argentina, despite their legal existence being recognized through registration in the relevant Argentine jurisdiction's Register of Commerce. However senior officers of the Central Bank have now informally indicated that, notwithstanding the misleading text, Communication A 5085 does not impose any additional restriction on the right of those branches to purchase foreign currency for investment.
  • When an Argentine resident purchases more than $250,000 in the FX Market in any calendar year, there must be a control of the source of the funds for tax purposes and the financial entity must request back-up documentation from the client for that purpose.
  • Any purchase of foreign currency (including cash) for portfolio investments in the FX Market within a calendar month in excess of $20,000 must be made (i) via a debit from the current account of the client, (ii) through a MEP system wire transfer, or (iii) with a check against an account of the client.
  • Foreign currency purchased for no specific purpose cannot be used, without prior Central Bank approval, for the acquisition in the secondary market of securities issued by non-residents that trade in Argentina.
  • The external financial and commercial debts of Argentine residents that lack a scheduled maturity are deemed to mature after 365 days (instead of 180 days, as was the case previously).

Sebastián A. Soler and Juan M. Diehl Moreno

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