On July 5, 2012, the Argentine Central Bank modified certain rules regulating the foreign exchange market in Argentina. These rules regulate Argentine residents who wish to convert Argentine currency into foreign currency for various purposes. Argentine residents seeking to convert Argentine pesos for foreign currency are required to do so in the central foreign exchange market in Argentina. The recent changes are in addition to recent restrictions imposed by the Argentine government in 2010 and 2011 on the purchase of foreign currency. The measures imposed in 2010 were ostensibly aimed at reducing tax evasion and money laundering; however, many observers agree that the regulations were also intended to reduce capital flight from Argentina. Individuals and companies wanting to exchange Argentine pesos for foreign currency must now explain the source of their funds and be current with their tax obligations.
Capital flight from Argentina has greatly accelerated in recent years primarily due to annual inflation that economists estimate is 24%, the highest among major global economies after Venezuela. Capital flight has caused central bank reserves to decrease significantly. The new exchange rules and the recent modifications are likely aimed at further slowing the depletion of central bank reserves.
The modifications announced yesterday may have a significant impact on South Florida, including real estate and tourism. Some of the announced changes seek to suspend indefinitely access by Argentine residents to the foreign exchange market for the purchase of foreign currency, including the purchase of foreign currency bills for local possession or saving; transfers abroad for real estate investments; loans granted to non-residents; contributions of direct investments in companies incorporated abroad; or portfolio investments abroad. Recently, Argentine buyers have become an important potential market for real estate developers building projects designed for sale to South American capital flight buyers. The new regulations which make moving funds from Argentina to the U.S. more difficult may have a chilling effect on demand for real estate in South Florida by Argentines seeking to invest in South Florida.
Moreover, some of the modifications will regulate access to the foreign exchange market for travel and tourism by Argentine residents and their dependent relatives, as well as of business entities for trips of their officers and staff. The modifications place certain restrictions on converting currency for use in personal or business travel and also places limits on the amounts which may be converted based on the destination and length of the stay. These restrictions may have a negative effect on local tourism as visitors from Argentina may be limited in the amount of money they can convert and spend in South Florida which may also limit the length of their stay.
Among some of the other new changes in the regulations are provisions which affect currency transactions related to payments for commerce. Generally, transfers over U.S. $100,000 would require prior authorization.
It will take some to analyze the real effect of these new regulations on tourism, real estate and other markets in South Florida. Any individuals or business entities in South Florida doing business with any Argentine resident or business entity should be aware of the potential risks related to the difficulty in moving funds from Argentina and how those risks affect contracts and other business arrangements.
WSH’s Corporate Practice Group and Real Estate Group has several attorneys with extensive experience handling international corporate and real estate matters. We are well qualified to help our clients analyze the related risks and create practical solutions.
Author(s): Joseph Hernandez
