Argentina Currency Controls: Key Changes

What you need to know about the recent lifting of Argentina’s currency controls.

BY MARIELA DEL CARMEN CAPARRÓS AND CLARA PUJOL

On December 10th Mauricio Macri became President of The Argentine Republic. Consistent with his campaign promises, the government implemented a series of measures to repeal or roll back currency controls referred to as the “cepo” (“clamp”) applied since October 2010. These controls involved restrictions affecting foreign exchange, capital movement, taxation and customs matters, in an attempt to stem capital flight and limit the erosion of the Argentine peso relative to the dollar.

The abandonment of the cepo reflects the Macri administration’s first steps toward an attempt to increase Argentina’s economic competitiveness, to promote capital repatriation and to stimulate investment. While the changes are numerous, we have identified the five most important — in terms of economic significance — measures. We expect the legal and regulatory landscape to continue to evolve significantly and rapidly over the coming months. Thus, any action should be coordinated among qualified finance, tax and legal advisers.

1.You can now purchase up to US$2 million per month. Under the cepo, residents could only acquire foreign currency for limited purposes subject to government approval (which, not surprisingly, was usually denied or unresolved). Since December 17, legal and natural persons may freely purchase up to US$2 million per month in foreign currency and other foreign assets, without government approval or review. Any cumulative monthly purchase beyond US$500 must be made with funds deposited in the banking system.

2. You can now remit foreign currency abroad. Until December 16, the Central Bank largely prohibited residents from purchasing dollars to remit funds abroad. Recipients of new inbound funds may now, subject to certain conditions, remit abroad an amount equal to what they receive from an inbound payment.

3. There is no hold-back on cross-border funding. Since 2005, the government had restricted cross-border funding in two significant ways. First, lenders were required to wait at least one year before the Argentine borrower could repay any portion of the funds. Second, 30% of any inbound funds were held by the Argentine bank for one year at zero interest (with a few exceptions). The new measures eliminate the hold-back (encaje) and lower the wait on cross-border repayment to 120 days.

4. Borrowers do not need to repatriate loan proceeds. Under the cepo, borrowers of foreign debt were required to domesticate all loan proceeds by bringing them to the Argentine financial system and converting them to pesos at the official exchange rate. The Central Bank further required borrowers to register their foreign debt and the payment schedules for that debt, as a condition to servicing any foreign obligation. The new rules eliminate the requirements of domesticating foreign loan proceeds but continue to require registration of the obligations. Borrowers may only purchase foreign currency to service foreign debts if they bring the proceeds into Argentina and exchange them for pesos.

5. Residents can now freely import goods and services. Under the cepo, the government managed Argentina’s balance of payments by restricting residents' access to foreign currency to pay for imports. As of December 16, all outbound payments for imported goods and services are unrestricted. For requests to pay for imported goods and services pending as of December 16, the government has set limits that will increase over the next six months (US$4.5 million per month for goods through May 31; for services, US$2 million per month until January 31 and US$4 million per month until May 31). Thereafter, all residents shall be able to access foreign currency to pay for imports without restriction

The foregoing measures form part of the government’s strategy of “unifying” the official foreign exchange rate, the blue chip rate, and the parallel market rate at between AR$14- AR$15 = US$1. The following chart shows fluctuations in the exchange rates before and after the government’s announcements on December 16:

Despite the breadth of the initiative, important vestiges of the cepo persist. Two significant remnants are the requirement that proceeds from exports and from the sale of “nonfinancial assets” (e.g. patents, trademarks, copyright) be repatriated and converted to pesos and the obligation to obtain prior government approval before importing goods. Argentine residents must continue to file a request with the Sistema Integral de Monitoreo de Importaciones (or “SIMI”), which looks suspiciously similar to the pernicious advanced affidavit of import (DJAI) that was required over the last several years2

The government has declared that a SIMI request will be approved or denied within 10 days but it remains to be seen whether the government will abide by this and if it has truly discarded a favored tool to curtail imports. Subject to this caveat, we expect the government to remove these and other restrictions as Argentina’s reserves are reconstituted.

Mariela del Carmen Caparrós (mcaparros@wsclegal.com) is a partner at Wiener Soto Caparrós. Clara Pujol (cpujol@wsclegal.com) is a lawyer at Wiener Soto Caparrós.

Republished with permission from Wiener Soto Caparrós.

See also Argentina Changes Course
 

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