G.BREUER
Since 1869
A Full Corporate Services Law Firm
GBA Newsletter December 2003
To
clients and friends:
Welcome
to the December edition of our Newsletter, a monthly e-bulletin prepared
by the firm bringing you a periodic update of some current events in
Argentina.
In
this issue we provide you:
More resolutions from the Corporations Bureau
It
is a pleasure to be in contact with you. If you would like more information
please do not hesitate to contact us.
P.S. If you do not want to receive this bulletin, or if you think someone else in your organization should be receiving it, please reply to this link indicating your full name, the name of the organization you work for, and the name of the person/s that would like to be added to our mailing list.
-
The new head of the Bureau continues to issue resolutions and rulings which place restrictions on foreign companies conducting business in Argentina. One of the latest rulings says that foreign companies can not be 99.99% owners of a local Argentine company. In such case the company needs to either register the local entity as a branch of the foreign entity or it needs to transfer at least 5% of the shares to a partner of the local entity in order for the partner to be able to exercise certain corporate rights and to comply with the law which requires two real partners for a corporation to be formed. Companies prefer to be 99.99% owner of the company rather than parent company of an argentine branch because as shareholder you are not responsible for the obligations of the company, whereas as owner of a branch you are responsible (with your own assets and resources). Many complain that the director has gone beyond the scope of the law because the law does not state any minimum amount of capital to be a partner nor that you have to have your patrimony at risk in order to be a partner. This ruling was passed for one company but is a precedent for the future and will affect many companies at the moment they go to carry out their next transaction or filing with the Corporations Bureau. It is possible that this ruling may be appealed to the courts.
-
Argentina just created a registry of holders of Argentine debt, as a step towards showing good faith effort in renegotiation of its debt. Their hope is to appease angry creditors and the International Monetary Fund (IMF) who is contemplating approving Argentina’s first review under the current program. Creditors have claimed it is just another stall tactic, especially since Argentina already has this information. Furthermore, creditors say the list shouldn’t make a difference since Argentina’s offer is unilateral.
-
The Global Committee of Bondholders is set to meet in January to try and pressure Argentina into repaying its debt. $88 billion in default. The Committee represents a little less than half of the country’s debt in default.
-
The expectation is that President Kirchner will continue to be tough with creditors to the last minute especially since that is what his public wants from him but there is confidence that things will be worked out, especially since Argentina will eventually need the return of foreign investment. Economists believe that rebounding from the crisis was the easier part for Argentina, but the hardest is yet to come, when Argentina will need access to other credit to grow more.
-
In the meantime, the NY judge Griesa who has been hearing the cases initiated in the US against Argentina, recently approved the first class action suit for $3.9 billion. Although this is only a small percentage of the $100billion that is owed by Argentina it sets the grounds for others to do the same.
-
IMF says it is too soon to say whether Argentina will obtain approval for the next tranche of its loan program with the IMF. The IMF stated that they might delay aid payments to Argentina because they are not happy with Argentina’s progress with its debt restructuring, which it must complete by mid 2004. Argentina is continuing to offer 25 cents on every dollar while debtors want 65 cents. IMF says it sees some improvement with the negotiations but not enough. The fund has rules which require countries to show that they are negotiating in good faith with creditors.
-
Argentina responded that it would not accept pressure from the IMF to increase its payments abroad. President Kirchner says spending any more money on debt payments would squash the recovery the economy is undergoing. Kirchner is still sticking to his tough stance and claims Argentina is “no longer afraid of the IMF or the fund’s friends”.
-
In addition, Argentina decided to request the NY judge hearing the cases for default against Argentina to define the scope of the pari passu clause. Pari passu means that a country can not create privileged debt or that all debt shall be on equal footing, although it would not affect the amount or timing of payment to each creditor. Argentina wants to know whether creditors who do not reach an agreement with Argentina but rather maintain lawsuits against the country still have the right to claim pari passu. The idea is that if they can claim pari passu then Argentina could be prohibited from making payments to creditors with whom Argentina has already reached an agreement, including payments to the IMF. Argentina’s expectation is that the court will decide that those who have initiated law suits against Argentina can not claim pari passu.
-
The IMF sent a mission to Buenos Aires recently to discuss their concerns with Argentina, which besides the debt restructuring, include bank sector reform, and rate negotiations with utility companies.
-
Up to now Argentina has been disputing jurisdiction of the International Center for Solution of Investment Disputes (ICSID) in the over 20 arbitration cases that were initiated against it as a result of the economic crisis and default. However, the ICSID has repeatedly confirmed its jurisdiction. Now, Argentina is presenting two different arguments: 1) That only controlling shareholders of companies and not minority shareholders should be able to initiate arbitration and 2) That, in response to those cases which argue against Argentina’s declaration of an economic emergency which led to devaluation of the currency, it is Argentina’s sovereign right to declare an economic emergency and it can not be considered prejudicial to investors. Argentina’s position is that it did not violate any of the bilateral investment agreements it is a party to which require showing a government decision which discriminates against investors, expropriation without compensation or the government made local access to the court system difficult.
-
Unemployment rate fell to 14.3% during the third quarter of 2003, although a new method for calculating puts unemployment around 16.3%. This new method of measurement does not include people receiving welfare as employed. Although this number is still high, it has decreased from the former level and jobs are increasing.
-
In the third quarter of the year, GNP rose 8.5%, making the total growth for 2003 something around 7.3%. Construction, which expanded by 40.3% in 2003, was the main driving force behind the year’s growth. The expectation is that in 2004 the economy will grow by 5%. But there is still a long way to go for full recovery, especially renegotiation of debt in default and of public services.
-
Stabilized economy helped increase exports by 30% to US in 2003.
-
President Kirchner’s administration is losing popularity in the opinion polls but the President’s popularity continues to grow.
-
According to a new study, small and medium sized businesses in Argentina will most likely suffer when the FTAA is implemented because with a free trade zone many Argentine exports will lose their market to products from NAFTA. The current agreement to enter into individual trade agreements will be easier on them as the market will open up at a slower rate.
-
The U.S. has already begun to move forward with individual agreements with many Central American countries in the context of FTAA. Still, local US farmers and supermarkets protest the opening of the market saying that reduction in tariffs will hurt their sales.
-
President Kirchner this month, assumed the role of chief of Mercosur for the next six months. His message is for South America to join together and have a common voice in order to be able to better negotiate with the rest of the world.
-
Mercosur’s goal is to have a common parliament and macroeconomic coordination by 2006.
-
Peru was recently added as an associate of the Mercosur block.
-
Mercosur signed a free trade agreement with the Andean countries where they both agreed to reduce tariffs on products over the course of the next 15 years. The exact products to be covered are yet to be defined.
-
All Mercosur member countries signed an agreement allowing members countries to bid in government proposals of other member countries.
-
The EU recently promised Mercosur a preferential tariff agreement which is supposedly better than those preferences offered through the WTO. Mercosur is pushing to make these preferential rights exclusive.
-
Argentina, as the current leader of Mercosur, proposed a meeting with the US and Canada to discuss the opening of the markets between Mercosur and NAFTA.
-
The Argentine government is pushing through a bill to reform the regulatory framework of the public services which will allow users to participate in the renegotiation of the public utility rates and allow smaller businesses to provide public services as well.
-
“Piqueteros” or local protestors are exerting more pressure on the government to resolve the crisis and provide them with social assistance. Some are concerned that these protestors may acquire more power, as the government is already treating them as an important force by negotiating with them rather than ignoring them. Others are pressuring the government to stop the daily protests that block roads and cause problems. President Kirchner is reluctant to crackdown too hard on them for fear that it could cause more violence and backlash.
-
There were recent allegations in an investigation that the Senate was bribed to pass the Labor Reform Law. Now the Senate is considering a new Labor Law since the presumption is that the old one is illegitimate.