Capital Markets and Portfolio Investment
The Argentine Constitution sets as a general principle that foreign investors have the same status and the same rights as local investors. Foreign investors have free access to domestic and international financing.
After a multi-year recession (2018-2020) exacerbated by the COVID-19 pandemic, the Argentine economy expanded 5.2 percent in 2022 following a rebound of 10.3 percent in 2021. However, the government did not ease the capital controls introduced in September 2019 to slow the outflow of dollars. Central Bank capital controls prohibiting transfers and payments are likely in conflict with IMF Article VIII. The government has maintained trade restrictions, price controls, distortive taxes, and high spending. Unable to access international capital markets (despite restructuring private debt in 2020) and with a shallow and saturated domestic market, the government relied on Central Bank direct and indirect monetary financing of the deficit. The excess liquidity resulted in high inflation (94.8 percent in 2022) and deteriorating social conditions, with the poverty rate reaching 39.2 percent in the second half of 2022.
In August 2020, the government of Argentina formally notified the International Monetary Fund (IMF) of its intent to renegotiate $45 billion due to the Fund from the 2018 Stand-By Arrangement. On March 25, 2022, the IMF Executive Board approved an Extended Fund Facility (EFF) program for Argentina. In broad terms, the program targets of the EFF include a reduction in the primary fiscal deficit, a gradual elimination of monetary financing of the deficit, and the accumulation of foreign reserves. Argentina has been able to meet the IMF program targets in the first four reviews despite its heterodox economic measures. However, meeting the targets has not helped to rebalance the economy or set it on a sustainable path. Macroeconomic imbalances persist, fueled by weak confidence, low policy credibility, high inflation, and uncertainty ahead of national elections in 2023.
The Argentine Securities and Exchange Commission (CNV, Comisión Nacional de Valores) is the federal agency that regulates securities markets offerings. Securities and accounting standards are transparent and consistent with international norms. Foreign investors have access to a variety of options on the local market to obtain credit. Nevertheless, the domestic credit market is small – credit is 9 percent of GDP. Private sector credit gained some following the reopening of the economy after the pandemic and government support measures such as subsidized credit lines for businesses. Nevertheless, the stock of credit shrank in real terms as the nominal credit growth increased by 65 percent in 2022, below the inflation rate of 94.8 percent. The Buenos Aires Stock Exchange is the organization responsible for the operation of Argentina’s primary stock exchange, located in Buenos Aires city. The most important index of the Buenos Aires Stock Exchange is the MERVAL (Mercado de Valores).
U.S. banks, securities firms, and investment funds are well-represented in Argentina and are dynamic players in local capital markets. In 2003, the government began requiring foreign banks to disclose to the public the nature and extent to which their foreign parent banks guarantee their branches or subsidiaries in Argentina.
Money and Banking System
Argentina has a relatively sound banking sector based on diversified revenues, well-contained operating costs, and a high liquidity level. Argentina’s banking sector was resilient in the face of the most recent multi-year economic recession (2018-2020). The strong post-Covid recovery of the economy generated dynamism for many sectors of the economy but has not translated into increased credit to the private sector. The operating environment is challenging, given political and policy uncertainties, continued domestic economic weakness (falling real income) and rising volatility on global capital markets. Limited financial intermediation combined with high inflation and interventionist interest rate regulations (mainly for small businesses) dented bank profitability in 2022. Banks compensated for this by controlling expenses and increasing digitalization of the sector. Private sector credit has started to falter in the face of monetary tightening (interest rates increased 38 percentage points). Banks have sought to protect their balance sheets by increasing their exposure to the public sector; total credit to the public sector amounted to 50 percent of banking system assets in 2022. Non-performing private sector loans constitute 3.1 percent of banks’ portfolios. During 2022, financial entities maintained adequate solvency indicators. The banking sector is well positioned due to macro and micro-prudential policies introduced since 2002 that have helped to reduce asset-liability mismatches. The sector is highly liquid and its provisions for bad debts are adequate.
Private banks have total assets of approximately ARS 17.9 trillion (USD $90.7 billion). Total financial system assets are approximately ARS 29.6 trillion (USD $150 billion). The Central Bank of Argentina acts as the country’s financial agent and is the main regulatory body for the banking system.
Foreign banks and branches can establish operations in Argentina. They are subject to the same regulation as local banks. Argentina’s Central Bank has many correspondent banking relationships, none of which are known to have been lost in the past three years.
In November 2020, the Central Bank launched a new payment system, “Transfers 3.0,” seeking to reduce the use of cash. This system will boost digital payments and further financial inclusion in Argentina, expanding the reach of instant transfers to build an open and universal digital payment ecosystem. The government has expressed support for the process of digitization of payments to improve efficiency, reduce costs, and safeguard financial stability. Technological improvements coupled with Central Bank promoting regulation contributed to an increase in the use of electronic payments to a level of 100 percent of GDP (up 6 percentage points) in 2022.
The Central Bank has enacted a resolution recognizing cryptocurrencies and requiring that they comply with local banking and tax laws. No implementing regulations have been adopted. Block chain developers report that several companies in the financial services sector are exploring or considering using block chain-based programs externally and are using some such programs internally.
Foreign Exchange and Remittances
Beginning in September 2019, the Argentine government and Central Bank issued a series of decrees and norms to extend or amend the government’s ability to regulate and restrict access to foreign exchange markets.
As of October 2019, the Central Bank (Notice A6815) limits cash withdrawals made abroad with local debit cards to foreign currency bank accounts owned by the client in Argentina. Pursuant to Notice A6823, cash advances made abroad using local credit cards are limited to a maximum of USD $50 per transaction.
As of September 2020, and pursuant to Notice A7106, Argentine individuals must limit purchases of foreign currency (or of goods and services denominated in foreign currency) to no more than USD $200 per month on a rolling monthly basis. Individuals must receive Central Bank approval to purchase foreign currency in excess of the $200 quota. Purchases of goods and services abroad with credit and debit cards issued by Argentine banks count against the USD $200 per month quota. Although no limit on credit or debit card purchases is imposed, if monthly expenditures surpass the USD $200 limit, the card owner will be prevented from purchasing foreign currency in Argentina for the number of months needed to cover the amount of excess spending. Also, the regulation prohibits individuals who receive government assistance and high-ranking federal government officials from purchasing foreign exchange.
Pursuant to Public Emergency Law 27,541, issued December 23, 2019, all dollar purchases and individual expenses incurred abroad, in person or online, including international online purchases from Argentina, paid with credit or with debit cards will be subject to a 30 percent tax. Pursuant to AFIP Resolution 4815 a 35 percent withholding tax in advance of the payment of income and/or wealth tax is also applied. Pursuant to AFIP Resolution 5272 a 25 percent withholding tax in advance of the payment of the wealth tax is applied on top of the previous tax rates.
Non-Argentine residents are required to obtain prior Central Bank approval to purchase more than USD $100 per month, except for certain bilateral or international organizations, institutions and agencies, diplomatic representation, and foreign tribunals.
Companies and individuals need to obtain prior clearance from the Central Bank before transferring funds abroad. In the case of individuals, if transfers are made from their own foreign currency accounts in Argentina to their own accounts abroad, they do not need to obtain Central Bank approval.
Per Notice A6869 issued by the Central Bank in January 2020, companies will be able to repatriate dividends without Central Bank authorization equivalent to a maximum of 30 percent of new foreign direct investment made by the company in the country. To promote foreign direct investment the Central Bank announced in October 2020 (Notice A7123) that it will allow free access to the official foreign exchange market to repatriate investments as long as the capital contribution was transferred and sold in Argentine Pesos through the foreign exchange market as of October 2, 2020, and the repatriation takes place at least two years after the transfer and settlement of those funds. Per notice A7626 issued by the Central Bank in October 2022, access to foreign exchange is not subject to Central Bank approval or to the 30 percent distribution limit whenever profits are generated as a result of direct foreign investment that financed projects under the Plan for the Promotion of Natural Gas Production, and the access to the foreign exchange market is requested after two years from the date of the contribution. Access to the foreign exchange market is also allowed for clients that increased exports of goods in 2021 or 2022, for an amount equal to the profits and dividends to be paid.
Exporters of goods are required to transfer their proceeds from exports to Argentina and settle in pesos in the foreign currency market. Exporters must settle according to the following terms: exporters with affiliates (irrespective of the type of good exported) and exporters of certain goods (including cereals, seeds, minerals, and precious metals, among others) must convert their foreign currency proceeds to pesos within 15 days (or 30 days for some products) after the issuance of the permit for shipment; other exporters have between 180 to 365 days to settle in pesos, depending on the product and the relation with the importer. Outside these deadlines, exporters must transfer the funds to Argentina and settle in pesos within five business days from the actual collection of funds.
Argentine residents are required to transfer to Argentina and settle in pesos the proceeds from services exports rendered to non-Argentine residents that are paid in foreign currency either in Argentina or abroad, within five business days from collection of funds. In June 2022, the Central Bank issued Notice A7518 which exempts individuals and legal entities that perform certain activities (including IT services, telecommunications services, charges for the use of intellectual property) from settling in the official foreign exchange market a portion of the proceeds from exports of services, if certain requirements are met. For individuals, up to $12,000 per calendar year is exempt provided the individual files a sworn statement with the local financial institution stating that they did not engage in blue chip swap market exchanges during the previous 90 days and committing not to use it during the next 90 days. For companies or legal entities, they must obtain a “Certification of increase in the collection of funds from export of services in 2022” from a local financial institution. To obtain this the legal entity must meet several requirements, including: demonstrating an increase in exports in 2022 compared to the previous year; the exporter settled the foreign currency in the official market during 2022; the exporter did not use the blue-chip swap market during the previous 90 days and commits not to use it for the next 90 days.
In October 2022, the government issued Decree 679 establishing an investment promotion regime for exports from knowledge-based economy activities. Companies may adhere to the regime by presenting one or more investment projects in infrastructure, capital goods, or working capital aimed at increasing the exports from knowledge-based activities and make a direct investment of more than $3 million. Beneficiaries of the regime will be exempt from settling in the official market up to 20 percent of the foreign currency received as foreign direct investment. These funds must be deposited in a special account in Argentina and may be applied to the payment of principal and interest of commercial or financial liabilities abroad, dividends, and/or repatriation of foreign currency for non-residents. The decree also established that companies will have access to foreign currency equal to 30 percent of the foreign currency brought into Argentina from the net incremental exports on a quarterly basis, taking as comparative base period the same quarter of 2021. The foreign currency must be deposited in a special bank account in Argentina and shall only be applied to the payment of employees working in the promoted activities.
Payment of imports of goods and services from third parties and affiliates require Central Bank approval if the company needs to purchase foreign currency. Since May 2020, the Central Bank requires importers to submit an affidavit stating that the total amount of payments associated with the import of goods made during the year (including the payment that is being requested). The total amount of payments for importation of goods should also include the payments for amortizations of lines of credit and/or commercial guarantees.
In September 2020, the Central Bank limited companies’ ability to purchase foreign currency to cancel any external financial debt (including other intercompany debt) and dollar denominated local securities offerings. Companies were granted access to foreign currency for up to 40 percent of the principal amount coming due from through December 31, 2020. This was extended multiple times, and in October 2022 extended again to include debt up through December 31, 2023. For the remaining 60 percent of the debt, companies had to file a refinancing plan with the Central Bank. Indebtedness with international organizations or their associated agencies or guaranteed by them and indebtedness granted by official credit agencies or guaranteed by them are exempted from this restriction.
The Central Bank (Notice A7001) prohibited access to the foreign exchange market to pay for external indebtedness, imports of goods and services, and saving purposes for individuals and companies that have made sales of securities with settlement in foreign currency or transfers of these to foreign depositary entities within the last 90 days. They also should not make any of these transactions for the following 90 days.
Pre-cancellation of debt coming due abroad in more than three business days requires Central Bank approval to purchase dollars.
Per Resolution 36,162 of October 2011, locally registered insurance companies are mandated to maintain all investments and cash equivalents in the country. The Central Bank limits banks’ dollar-denominated asset holdings to 5 percent of their net worth.
In January 2022, the Central Bank presented its monetary, financial, lending, and foreign exchange program. On monetary policy, the Central Bank committed to 1) safeguard availability of savings instruments with positive returns compared to both inflation and exchange rate depreciation with the intention to anchor foreign exchange expectations, and favor the disinflation process; and 2) to maintain a prudential management of the monetary aggregates, by sterilizing a potential liquidity surplus to preserve equilibrium in the monetary market. On foreign exchange, the Central Bank will gradually maintain the crawling peg of the exchange rate consistent with the pace of inflation. As long as macroeconomic conditions allow, the Central Bank will relax capital control regulations in the medium- and long-term. To support economic activity, the Central Bank will boost both the financial intermediation and inclusion of individuals and companies to meet financing and production and consumption needs. Credit assistance channeled to the sectors most affected by the pandemic will be gradually reduced as long as they consolidate their recovery process.
In response to the economic crisis in Argentina, the government introduced capital controls in September 2019 and tightened them in 2020. Under these restrictions, companies in Argentina (including local affiliates of foreign parent companies) must obtain prior approval from the Central Bank to access the foreign exchange market to purchase foreign currency and to transfer funds abroad for the payment of dividends and profits. In January 2020, the Central Bank amended the regime for the payment of dividends abroad to non-residents. The new regime allows companies to access the foreign exchange market to transfer profits and dividends abroad without prior authorization of the Central Bank, provided the following conditions are met:
(1) Profits and dividends are to be declared in closed and audited financial statements.
(2) The dividends in foreign currency should not exceed the dividends determined by the shareholders’ meeting in local currency.
(3) The total amount of dividends to be transferred cannot exceed 30 percent of the amount of new capital contributions made by non-residents into local companies since January 2020.
(4) The resident entity must be in compliance with filing the Central Bank Survey of External Assets and Liabilities.