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Letters of credit (L/Cs) may be used to pay for U.S. exports to Argentina. A number of banks in Argentina open letters of credit once the bank has approved a line of credit for the Argentine importer. Multinationals, large- and medium-sized firms are still the main users of L/Cs. However, to a lesser degree, small firms also use LCs.
Another payment option may be direct payment from Argentine importers’ overseas bank accounts. Bank drafts and documentary collections are also of common use. While they do help safeguard the U.S. exporter's title to goods until payment has been received, all credit and country risk remains with the exporter. There is no obligation for the bank to cover these risks. However, documentary collections are less costly than letters of credit and, where the exporter is comfortable with these risks, they offer a practical and efficient solution, particularly for Argentine subsidiaries of U.S. companies.
According to local sources, the majority of sales to Argentine importers are currently taking place on open account. Small- and medium-sized Argentine companies in key sectors continue to have liquidity, favoring technological upgrades in production lines. As a result, open account sales generally take place between small- and medium-sized firms. U.S. exporters should consider open account payment terms only if they have a great deal of trust in the local importer and feel confident in the client's ability and willingness to pay.
In Argentina, Law No. 21,526 of 1977 governs banking activities. Under this law, Argentina’s Central Bank (BCRA) is the implementing authority and the regulatory body, which issues standards and controls activities of financial institutions included in the law (authorization and operating conditions within the banking industry; definition of permitted, prohibited and limited transactions; monetary controls; meeting certain operating ratios; information; accounting and control systems; dissolution and liquidation; etc.). In order to operate in Argentina, foreign banks must register with the BCRA and obtain appropriate authorization prior to engaging in banking activities in the country. In addition, there are minimum capital requirements for these entities to be allowed to do business.
Features of the Argentine Financial System
Funding System: Main Transactions
Financial transactions are generally made in pesos (legal tender), U.S. dollars, and government securities. The three segments making up Argentina's financial system are: peso, foreign currency, and the liquid assets under management of all banks in the financial system.
The main transactions are:
In the late nineties, there were 120 banks operating in Argentina, whereas today there are approximately 65, after the fallout from the 2002-2003 peso devaluation crisis. However, the financial system is perceived to be healthier than it was in the last decade.
Some public banks have improved management quality and, as a result, benefited from a significant increase in deposits over the last few years. Banks currently enjoy higher-quality client-portfolios than in the pre-crisis scenario.
The Argentine Central Bank is the regulatory body that approves foreign exchange acquisition for import-related transactions. For advance payments, Argentine importers must submit customs clearance documents, to include an approved Sworn Declaration of Intention to Import, known by its acronym in Spanish as DJAIs (or Declaración Jurada Anticipada de Importación), to their commercial bank within 360 days from payment as proof that the goods have been approved to enter the market. The Secretary of Trade in the Ministry of Economy reviews and clears the DJAI requests. If products are brought into Argentina as a temporary import, importers must submit within 90 days an interim-destination document for temporary import.
The Argentine government restricts the purchase of foreign currency, based on several variables. Amounts of foreign exchange transactions may vary on a case-by-case basis. Argentine companies can perform import payments in four different ways:
1) Advance payments: before the merchandise is shipped. The commercial bank
requests from the Argentine importer the pro forma invoice and exchange purchase ticket. The local buyer has 360 days from shipment date to present the Customs clearance to its commercial bank.
2) Sight payments: when the merchandise was already shipped and payment is made against documents. The Argentine importer has 90 days from shipment date to present the commercial bank the clearance for Customs.
3) Credit payments: delayed payment. The commercial bank requests that the Argentine importer presents the clearance to Customs to keep track of merchandise imported, payments already made, and payments still due.
4) Anticipate the credit payment: delayed payment. The local buyer pays in full in one single payment. The commercial bank requests that the Argentine importer presents the clearance to Customs to keep track of merchandised imported and all payments made.
Since 2002, Government of Argentina (GOA) regulations require that all exports be assigned a value and that foreign exchange revenues be returned to Argentina. Thus, barter transfers of goods between exporter and importer are not possible. While bartering does not involve a sale per se, the GOA would still expect to see foreign exchange remittance to the local bank based on the value of the goods exported.
U.S. Banks in Argentina: Citibank is the only U.S.-controlled bank operating in Argentina within the retail segment. American Express Bank, Bank of America, Wachovia Bank, J.P. Morgan Chase, The Bank of New York, and First International Bank are other U.S. banks with subsidiaries or representatives in Buenos Aires.
Most Argentine banks maintain correspondent arrangements with U.S. banks. To obtain a list of Argentine Commercial Banks with Offices in the U.S. or banks operating in Argentina, please review the Argentina Government Portal: http://www.argentina.gob.ar/index.php or contact Marcelo.Amden@trade.gov.
Lack of access to international financial markets has limited project financing in Argentina. Credits have been coming from the Inter-American Development Bank and some countries, but financing from other multilateral banks and major developed countries has been limited due to concerns with Argentina’s unpaid debts. Argentina agreed to settle its unpaid debt to its Paris Club creditors in 2014, which may pave the way for broader export financing in the future.
Money inflows to the local market are primarily used to finance Argentine export transactions. Local banks have stressed that the supplier-importer relationship is key, and that the vast majority of financing options have been reduced to financing offered by the foreign supplier. Nevertheless, there may be some options available to support trade finance for U.S. exports to Argentina, which are detailed below.
The U.S. Export-Import Bank (Ex-Im)
Ex-Im Bank is open for short and medium-term financing for U.S. exports only to private sector clients in Argentina. Bank officials continue to monitor the marketplace in order to consider future provisions of export financing for U.S. goods and services.
Ex-Im Bank can still consider financing arrangements that eliminate or externalize country risks. Potentially acceptable transactions include structured transactions that earn revenues offshore in a country with no Country Limitation Schedule restrictions (see www.exim.gov) and are held in a bank or trust account acceptable to Ex-Im Bank; third-party support from creditworthy entities in countries with no Country Limitation Schedule restriction; and asset-backed lease and financing structures involving equipment such as aircraft.
In addition, coverage under the Working Capital Guarantee Program may be available for a transaction that is supported by an irrevocable Letter of Credit issued by a bank and/or due from a buyer located in a country where Ex-Im Bank is open without restrictions for short-term transactions, but only to the private sector.
Visit the Ex-Im Internet site at http://www.exim.gov/ for 24-hour access to Ex-Im and its programs, or call their toll free telephone number (800) 565-EXIM.
Small Business Administration
The Small Business Administration (SBA) has an Export Working Capital Program to support small and medium-sized exporters. For information about this program and to find your local SBA district office, call 1-800-U-ASK-SBA or search the SBA web site at http://www.sba.gov/. The U.S. Export Assistance Centers (USEAC) of the U.S. Department of Commerce can also provide information on this program. For a list of USEACs call 1-800-USA-TRADE or go to http://export.gov/usoffices/index.asp.
Multilateral Development Bank Operations
The International Bank for Reconstruction and Development (IBRD or World Bank) provides funding for projects in Argentina. It also provides technical assistance and policy advice. IBRD raises money through the sale of AAA-rated bonds in international capital markets. Loans are made only to governments or to agencies that can obtain a government guarantee. The IBRD also provides partial risk or partial credit guarantees (with a counter-guarantee from their government) to private lenders on development projects. The interest rates are variable, set at half a percentage point above the Bank's average cost of borrowing or LIBOR. Repayment is usually between twelve and fifteen years, including a grace period of three to five years. Opportunities exist for U.S. companies to supply goods and services financed by these loans.
For contact information on World Bank projects in Argentina visit http://web.worldbank.org/external/projects/main?pagePK=217672&piPK=95916&theSitePK=40941&menuPK=223661&category=regcountries®ioncode=7&countrycode=AR.
The International Finance Corporation (IFC) is an affiliate of the World Bank and also provides project financing for private investment in Argentina. IFC offers long-term loans, equity investments, and other financing services. IFC will generally invest up to 25 percent of the total project cost. Besides project finance, IFC also provides legal and technical assistance to private enterprises. Unlike the IBRD, the IFC does not require government guarantees. U.S. companies seeking direct investment funds should contact the IFC.
The Multilateral Investment Guarantee Agency (MIGA) was established in April 1988 to help investors address problems of political risk. Investors' concerns about political risk slowed the flow of foreign direct investment, which in turn slowed the creation of jobs and the transfer of modern technology. MIGA's purpose is to promote the flow of foreign direct investment among member countries by insuring investments against non-commercial (political) risk and by providing promotional and advisory services to help member countries create an attractive investment climate. U.S. companies seeking investment guarantees should contact MIGA. NOTE: The Overseas Private Investment Corporation (OPIC) also provides investment guarantees - more information below).
The Inter-American Development Bank (IDB) also provides financial support to projects in Argentina at similar interest rates and with similar repayment terms. The relationship between the Inter-American Investment Corporation (IIC) and the IDB is similar to that of the IFC and the World Bank.
For contact information of multilateral development bank representatives in Argentina, see Chapter 9: Contacts, Market Research, and Trade Events.
U.S. Department of Commerce Liaison Officers
At each of the multilateral development banks, the U.S. Department of Commerce has a liaison officer who advocates for U.S. firms and counsels them on multilateral bank opportunities. They are a valuable source of information on Multilateral Development Bank funded projects in Argentina.
Please see below for the contact information of the U.S. Commercial Service liaisons at the World Bank and Inter-American Development Bank:
E. Scott Bozek
Advisor & Director of Business Liaison
Office of the U.S. Executive Director
U.S. Trade Advocacy Center
E-mail: firstname.lastname@example.org; email@example.com
Phone: (202) 458-0120
Fax: (202) 477-2967
Overseas Private Investment Corporation
The Overseas Private Investment Corporation (OPIC) offers assistance to U.S. private investors in the form of political risk insurance, as well as loans and loan guarantees for their direct investment in Argentina. OPIC's main programs are:
Investment Insurance: Provides insurance against the risks of currency inconvertibility, expropriation, and the loss of assets or income caused by political violence. Coverage is available for new investments and for investments to expand or modernize existing operations.
Investment Programs: Medium- to long-term financing for sound overseas investment projects is made available through loan guarantees and direct loans. Loan guarantees generally range from $10 million to $75 million, and direct loans generally range from $2 million to $10 million. Direct loans are reserved for projects involving small businesses or cooperatives. OPIC's financing commitment may range from 50 percent of total project costs for new ventures to up to 75 percent for expansions of existing operations with maturities of five to twelve years (and in some cases longer).
Contact: www.opic.gov. Information officer: (202) 336-8799, Fax: (202) 408-5155. There is an automated information service via a fax retrieval line: (202) 336-8700.
The passage of Leasing Law No. 25.248 in 2000 raised the stature of leasing as a financing option. Currently, leasing operations in Argentina account for 1.6 billion, comprised mostly of equipment leasing operations. Leasing activities increased approximately 50 percent since 2012, and industry experts expect this trend to continue evolving. According to Argentina’s Leasing Association, financing through leasing was mainly used in the transportation, logistics and automotive sector (56.7%), purchase of industrial equipment (15.2%), construction machinery (9.9%), agricultural machinery (9.8%), technology and telecommunications equipment (4.8%) and real estate (1.6%). Some of the perceived advantages of leasing entail: installments which are fully deductible from capital gains taxes, no property taxes or taxes on interest, VAT applied proportionately on installments rather than up front, and accelerated depreciation.