Argentina: Argentina - Emergency Decree Nbr. 53/2003 Has Been Repealed

The emergency Decree Nbr. 53/2003 dated January 9, which among other issues established the "re-dollarization" of debts assumed by companies incorporated in Argentina, directly or indirectly controlled by either foreign individuals or legal entities, has been repealed by means of emergency Decree Nbr. 70/2003 published in the Official Gazette on January 14.

The new Decree Nbr. 70/2003, which became effective as from its issuance, repealed subsections (h) and (l) of Section One of Decree Nbr. 53/2003. The latter decree was issued to clarify Decrees Nbr. 214, 410 and 471 issued during the year 2002 and related to the "pesification" of obligations to render foreign currency.

Such repealed subsections (h) and (l) removed the effects of "pesification" for:

(i) such debts, even under Argentine law, assumed with local creditors by local companies controlled by foreign companies, with the exception of debts of financial entities with their depositors (subsection h); and

(ii) such debts, even under Argentine law, assumed by local companies through financings granted by branches and/or subsidiaries of foreign financial entities, on account and order of the head office, and which funds derived foreign credit lines (subsection l).

Not only the repealed subsections were misleading regarding their scope (some companies were not sure whether they were reached by the new regulations), but also Decree 53/2003 was immediately rejected by the representatives of foreign companies operating in Argentina. The new regulations were deemed as discriminatory and unconstitutional, since they maintained the benefits of "pesification" for such companies of Argentine capital and excluded the conversion into pesos of such foreign currency denominated obligations of local companies controlled by foreign companies, as noted above.

Notwithstanding the above, some modifications introduced by other subsections of Decree 53/2003 were passed, thus leaving out of reach of the "pesification":

- obligations to render foreign currency in favor of Multilateral Credit Organizations (e.g., IMF) to which the Government is a party, regardless of their cause and whether they are subject to Argentine law; and

- such loans or credits taken by Provincial or Municipal governments and by State or Private companies in favor of the National Government, originated in loans and guarantees originally financed by Multilateral Credit Organizations (e.g., IDB and the World Bank). This measure would also include such debts assumed by social security institutions with multilateral credit organizations, as well as such credits taken by corporations with the IFC.

In this sense, the "dollarization" of debts with multilateral credit organizations may be interpreted to be in line with the current negotiations held between the Argentine Government with the International Monetary Fund towards reaching a financial assistance agreement.