The private debt restructuring process carried out under the current foreign exchange regulations and particularly Communication A7106 of the BCRA resulted in foreign currency savings of USD26,635 million as from 2020, and avoided a general default crisis.
Between the end of 2015 and 2019, companies increased 83% their external debt; i.e., more than USD21,000 million, until reaching a total amount of USD45,045 million. This went along with the deregulation policies and high domestic interest rates, characteristic of that period, to the detriment of the development of the local capital market.
Since the end of 2019, the high burden of private external debt maturities has made the BCRA establish a set of regulations restricting access to the forex market for this concept, so as to avoid a demand that could be disruptive to the operation of the forex market.
Particularly, the following regulations stand out:
• The payment of debt from one company to another related company (whether it belongs to the same group, it is a subsidiary or a parent company) is restricted.
• Companies must use their own dollars (liquid foreign assets deposited abroad) before being allowed to buy foreign currency to pay financial or commercial debts (for imports).
• They can only access the forex market to pay registered debts that are duly documented and, as of 2020, that were settled in the forex market.
• Companies must refinance at least 60% of debt maturities at a minimum average term of two years (debts of less than USD2 million are excluded from the obligation so as to reduce obstacles for SMEs).
• Companies may not pay maturities more than 3 business days in advance.
• In case companies want to start an early refinancing process under the guidelines established by the BCRA, the refinancing requirement is increased to at least 70%.
It is worth mentioning that data statistics have been misinterpreted. Between January 2020 and April 2022, the information on the foreign exchange balance exhibited net outflows for "Financial loans, debt securities and credit lines" totaling USD14,405 million. However, net payments in foreign currency made by companies were considerably lower, reaching USD5,367 million.
This is because the heading "Financial loans..." also includes debts for credit card payments abroad, payments of financial loans in foreign currency granted by local financial institutions and payments of foreign loans and debt securities of the provinces. This payment figure also differs conceptually from the Balance of Payments, which makes a difference between residents and non-residents.
Since 2020, foreign exchange regulations have been adopted to avoid debt payments with an impact on the forex market for an amount of USD26,635 million; USD12,756 million for debts with related companies, and USD13,889 million for debt maturity restructurings with non-related companies. Out of a total of USD32,000 million due liabilities in the period, there were payments of USD5,367 million, 17% of the total.
Communication A7106, as supplemented, established the mechanisms to access the forex market for debts incurred with non-related counterparties. Only 40% of the maturing principal can be paid, having to refinance the rest with a new external debt, with an average life of at least two years.
Finally, the effect on companies' balance sheets of closing the access to the official forex market would have led them, in some cases, to a situation of bankruptcy, making it impossible to access credit to refinance their obligations and exposing them to hostile takeovers, affecting mainly the food and energy sectors, with an impact on domestic prices and the level of employment.
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June 14, 2022