Trade and Project Financing

How Do I Get Paid (Methods of Payment)

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 company. Multinationals, large and medium sized firms are still the main users of L/Cs. However, to a lesser degree, L/Cs are also used by small firms.

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.

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How Does the Banking System Operate

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 Argentina. In addition, there are minimum capital requirements for these entities to be allowed to do business.

Features of the Argentine Financial System

Classification

o Government-owned: federal, provincial and municipal.

o Private local banks with Argentine capital: cooperative banks and non-cooperative banks.

o Foreign banks: private local and local branches of foreign banks.

o Government-owned provincial banks.

o Local banks with foreign capital.

Funding Systems: 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 only approximately 60, after the shake out from the 2002-2003 peso devaluation crisis. However, the financial system is perceived to be healthier than it was in the last decade. Most financial institutions in Argentina plan to continue expanding operations in order to achieve greater financial margins.

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. Better clients translate into lower credit risk, and as the perception of risk decreases, credit is expected to gradually become more accessible in the medium term.

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Foreign-Exchange Controls

The Argentine Central Bank lifted all restrictions on the release of foreign exchange and allows advance payment for imports. For advance payments, Argentine importers must submit customs clearance documents to their commercial bank within 360 days from payment as proof that the goods have indeed entered the market. If products are brought into Argentina as a temporary import, importers must submit within 90 days an interim-destination document for temporary import.

Another payment option may be direct payment from Argentine importers’ overseas bank accounts. Bank drafts and documentary collections are also being used. While they 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 enjoy certain 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 great deal of trust in the local importer and feel confident in the client's ability and willingness to pay.

The Argentine government restricts the purchase of foreign currency, raising the ceiling on purchases of foreign exchange by businesses and individuals to $2 million per month.  Argentine companies can basically 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 for Customs to keep track of merchandise imported, payments already made and payments still due.

4) Anticipate the credit payment: delayed payment.  The local buyer decides to cancel all quotas in one single payment. The commercial bank requests that the Argentine importer presents the clearance for 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 delivered to a local bank based on the value of the goods exported.

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U.S. Banks and Local Correspondent Banks

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.gov.ar/argentina/portal/paginas.dhtml?pagina=246 or contact Marcelo.Amden@trade.gov.

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Project Financing

Argentina is currently unable to access international capital markets due to the legal challenges from holders of untendered defaulted debt (the so-called "holdout" bondholders who did not participate in the government's 2005 debt exchange), a situation that has been further compounded by the negative impact of the international economic crisis. As a result, financing options -- both domestic and international -- are scarce and costly in Argentina.

External lines of credit continue to be cut off, and new money entering the local market is 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, as 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. Long-term (15 years) financing is available for environmental projects on a case-by-case basis. Bank officials express optimism about Argentina and will continue to monitor the marketplace in order to consider future provisions of export financing for U.S. goods and services.

Ex-Im Bank will consider structured financing arrangements such as some project finance, asset-based aircraft leases, and other financing arrangements in key industries, such as mining, that offer a reasonable assurance of repayment, including reliable access to adequate foreign exchange.
 
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.
 
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://www.export.gov/usoffices/.
 
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&regioncode=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.
 
The following is the contact information for the U.S. Commercial Service liaisons at the World Bank and Inter-American Development Bank:

U.S. Commercial Service Liaison to the World Bank
David Fulton, Advisor & Director of Business Liaison
Office of the U.S. Executive Director
U.S. Trade Advocacy Center
Email: david.fulton@trade.gov
Phone: 202-458-0120
Fax: 202-477-2967
http://www.export.gov/worldbank/

U.S. Commercial Service Liaison to the Inter-American Development Bank
Ms. Barbara White, Commercial Liaison
U.S. Executive Director's Office
Inter-American Development Bank
Email: barabaw@iadb.org
Phone: 202-623-3822
Fax: 202-623-2039
http://www.export.gov/idb/

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:

Leasing

The passage of Leasing Law No. 25.248 in 2000 raised the stature of leasing as a financing option. Current leasing operations in Argentina account for 800 million, mostly of equipment leasing operations. Leasing activities increased approximately 55 percent year-on-year from 2009 to 2010, and industry experts expect this trend to continue evolving. Furthermore, leasing operations account for less than five percent of investment in Argentina, which represents a significant opportunity for growth. 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. 

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Web Resources

o Ex-Im Bank Country Limitation Schedule: http://www.exim.gov/tools/country/country_limits.html

o World Bank Projects in Argentina: http://web.worldbank.org/external/projects/main?pagePK=217672&piPK=95916&theSitePK=40941&menuPK=223661&category=regcountries&regioncode=7&countrycode=AR

o U.S. Commercial Service Liaison to the World Bank: http://www.export.gov/worldbank/

o U.S. Commercial Liaison Office at the Inter American Development Bank: http://www.export.gov/idb/

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