This article was first published in Argentine Business Law Watch1

Many Argentines enjoy playing the lottery. Thus, when today’s Official Gazette revealed Decree 53/2003, benignly captioned "Reorganization of Financial System", the significance of "53" or "the boat" in lottery parlance, seemed more than a coincidence. As if adrift in an ever-changing sea of rules affecting their contractual rights, foreign-owned businesses have learned of a new twist in the Argentine government’s policy on foreign-currency obligations.

Text of Decree 53/2003, Paragraph (h)

Paragraph (h) of Decree 53 retroactively adds a new exception to Decree No. 214/2002, which had converted virtually all foreign-currency obligations into pesos. For dollar-denominated debts, a one-to-one conversion rate was specified, even though the value of the peso was rapidly plummeting. A subsequent decree (Decree 410/02) exempted from "pesofication" obligations governed by foreign law. Decree 53 removes from pesofication:

obligations to pay sums of money in foreign currency, contracted by legal persons resident or located in [Argentina] controlled directly or indirectly by legal or natural persons resident or located abroad with legal or natural persons resident or located in [Argentina], even when the applicable law is the law of Argentina, except for operations contemplated by Section 2 of Decree No. 214/02.2

Decree 53 is effective immediately and retroactively as of the publication of Decree No. 214/2002 (February 4, 2002).

The plain reading of Paragraph (h) confirms that all foreign-owned companies with debts owed to Argentine residents have had their obligations returned to the original contract currency. The prior conversion of this debt to pesos by Decree 214/2002 is no longer effective. Though not express in the decree, the most reasonable interpretation based on applicable law and precedent leads us to conclude that debt already cancelled by a company is not affected by Decree 53. While the decree refers only to debts owed to residents, presumably obligations with non-residents are governed by foreign law and thus already excluded from pesofication.

Arguments in Support of Legal Action

Decree 53 prompts various constitutional arguments. The most obvious is that it patently discriminates against foreign investors, violating constitutional guarantees of equal protection. Other constitutional rights, including those related to private property and the protection against arbitrary and unreasonable government conduct, are also adversely affected.

Unless the Argentine Government reverses this decree, one can expect an avalanche of lawsuits and possibly international arbitration actions under bilateral investment treaties.

1 "Argentine Business Law Watch" is a periodic news service provided free of charge to clients and friends of Negri, Teijeiro & Incera.

2 Section 2 refers to bank deposits in Argentina.

This article is provided as a service to clients and friends of Negri, Teijeiro & Incera. It is not intended to impart legal advice on any matter.