In recent months Argentina has been experiencing both formal and informal additional foreign exchange restrictions both to purchase in the country and to transfer foreign currency abroad. These restrictions are aimed at deterring outflows of foreign currency in Argentina and keeping a positive balance of payment. In 2011, the capital flight amounted to US$21,504 millions, a sharp increase of 90% compared to 2010.
The non-regulated restrictions were initiated via an information regime set up by the Central Bank and communicated to the financial institutions and banking associations via e-mails sent on November 29 and December 12, 2011 (the "Information Regime"). These e-mails have no binding effect for legal purposes as the Information Regime has not been established through a valid regulation issued by the Central Bank. However they currently have a real impact on the foreign exchange market.
Pursuant to such e-mails, the Central Bank requested financial institutions to inform in advance of any foreign exchange transaction to be entered into through the Foreign Exchange Market. Such advance period is currently of 10 business days.
The obligation to supply this information applies to all foreign exchange transactions, without distinction, exceeding US$500,000 per item (concepto), client and day. Hence, if a client must pay services for an amount of US$300,000 and imports for an amount of US$300,000, such foreign exchange transactions does not need to be informed as such amounts do not exceed the minimum of US$500,000 for each item. If a client must pay sight imports for an amount of US$400,000 and make a deferred payment of imports for an amount of US$150,000, such foreign exchange transactions should be informed, as these transactions fall within the same "imports" item and therefore, together they exceed the minimum of US$500,000.
Currently, transactions not included in the list provided to the Central Bank (the "List") are not performed by financial institutions unless previously and "informally approved" by the Central Bank.
Simultaneously with the Information Regime, the Central Bank has "informally" instructed financial institutions to request Central Bank prior approval before executing foreign exchange transactions included in the List. In recent weeks, however, several foreign exchange transactions that were included in the List have not been "approved" by the Central Bank" and therefore their execution has been delayed.
In addition, on February 8, Argentine newspapers reported that the Central Bank (through their trade-desk officers) had "informally" (i.e. on an oral basis) instructed financial entities to obtain the Central Bank's prior approval for any purchase of foreign currency to pay dividends abroad – irrespective the amount involved. This de facto restriction has not been stated in a regulation or even via an e-mail but however has been confirmed by several players on the foreign exchange market.
Furthermore, although purchase of foreign currency to pay imports, dividends, foreign debt and services abroad is allowed under Argentine foreign exchange regulations, foreign exchange transactions are being delayed or denied as a result of these de facto restrictions.
As a consequence of the formal and informal foreign exchange restrictions, the Argentine Government has succeeded in recent months in slowing foreign currency outflows and in improving the balance of payments outcome, though the levels of 2010 have not yet been reached. Therefore, there is no expectation of the Central Bank lifting these formal and informal restrictions, at least in the short term.
Footnote
* Partner of Marval, O'Farrell & Mairal, Buenos Aires, Argentina
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