Circular Foreign Exchange Operations and Movement of Funds and Securities with the Abroad - CAMEX 1 - 52

BANCO CENTRAL DE LA REPÚBLICA ARGENTINA
COMUNICACIÓN "A" 327 01/06/83
TO AUTHORIZED FINANCIAL ENTITIES OPERATING IN EXCHANGE AND FOREIGN EXCHANGE BROKERS:
Ref: Circular FOREIGN EXCHANGE OPERATIONS AND MOVEMENT OF FUNDS AND SECURITIES WITH THE ABROAD - CAMEX - 1 - 52

We address you with reference to swap operations agreed upon pursuant to the provisions made known by Communications "A" 129 of 28.5.82; "A" 130 of 28.5.82 and "A" 136 of 5.7.82 and those that according to complementary rules are renewals of the cited operations.

On this matter, we inform you that it has been resolved to apply to the aforementioned swap operations, whose maturities have occurred from 5.3.83 onwards and will operate henceforth, the following provisions for their renewal:

I. WITH COVERAGE BY THE CENTRAL BANK FORWARD CONTRACTS

1. Term
   All operations will be renewed for a term of 3 years, counted from the date of the last maturity, with partial cancellations as provided in point 2.

2. Cancellation
   It will be carried out in partial installments, each equal to 25% of the total amount by capital, with 180 days elapsing between each one, with the first installment due 540 days from the date of the renewal instrumented according to these provisions.

3. Renewals
   In accordance with the provisions referred to in points 1. and 2. above, the operations will be renewed for partial periods of 180 days each, applying for each one the prevailing selling exchange rate in the single exchange market on the date of the renewal. For technical reasons, the indicated term may be reduced or extended by up to two days. In the case of expired operations between 5.3.83 and the date of this Circular, the following procedure will be followed for the calculation and application of future rates:

• From the contract's maturity date to be renewed under this regime until the date of the present Communication inclusive, prevailing rates will be applied in the corresponding periods.

• From 2.6.83 onwards until the fulfillment of the 180-day term counted from the original maturity, the future rate fixed in point 4 will be applied.
  The renewal of the contracts will be formalized in the customary manner, maintaining the same numbering originally assigned to the extended contract; the 180-day term will be counted from its maturity and the exchange rate to be applied will be the selling rate prevailing on that date. For the respective compensation, they will adjust to the procedure of point 6.

4. Future Rate
   a. On the spot exchange rate of each renewal, as indicated in the preceding point 3, the future rate resulting from the comparison between the value of the index, referred to in point 4. b), corresponding to the maturity day, and the value of the index corresponding to the day of the renewal of the respective swap operation will be applied. The index will be disseminated by the Central Bank. To the value determined according to the preceding paragraph, the following will be deducted:
   i) the LIBO rate prevailing on the date of each renewal plus an additional margin of 2 3/4 percentage points annually; or ii) the PRIME rate defined according to item c., plus an additional rate of 2 5/8 percentage points annually. iii) in both cases, the amount corresponding to the withholding for the income tax on interest payable abroad, when this is borne by the local debtor, will also be deducted. The option between LIBOR or PRIME will be exercised by the contract holders at the start of the operation and will remain for the complete period of 3 years. The chosen alternative must coincide with the base rate agreed upon in the external loan operation, except when the latter has been defined on other bases. The method of calculating the future rate is indicated in the Annex to this Communication. b. The index mentioned in the previous point will reflect daily a variation equal to the value of the daily rate equivalent to the rate for lending operations of the Banco Nación reduced by six annual percentage points. The Banco Nación Argentina rate to be computed will be the nominal annual effective rate for 30-day loan operations corresponding to the second business day prior to the date of the index.
   c. The LIBO rate referred to in section a. will be the average rounded to the nearest 1/16 of the annual rates for 180-day periods, to which three reference banks selected by the Central Bank offer funds to first-line banks in the London interbank market, on the second business day prior to the date of renewal of the swap operation.

B.C.R.A. COMMUNICATION “A” 327 01/06/83

The PRIME rate will be, for each 180-day period, the arithmetic average of the rates corresponding to that term published by the Central Bank based on a simple average of the PRIME rate reported by three reference banks selected by the Central Bank among their correspondents in the United States of America. d. The Central Bank may modify the calculation basis of the index mentioned in point 4. b) taking into consideration the interest rates accrued on loans by the Banco de la Nación Argentina for terms different from that established by this measure, when market conditions justify it.

5. Interest
   The forward exchange purchases made by the holders of swaps will be for the amount of the owed capital plus the interest they must pay the lender for the immediate next 180-day period. For interest, forward purchases can only be arranged corresponding to the net sum to be paid to the lender (excluding taxes and other expenses payable in pesos). The forward contracts for the sum insured in concept of interest may be liquidated for the purpose of payment to creditors.

6. Resulting Amount from the Compensation of Exchange Rates
   Compensations will be carried out directly by authorized entities, without the need to arrange them in each case through the exchange clearinghouse, and instrumented by sending, in the customary manner, the respective formula 2600. In the case of contracts expiring between 5.3.83 and the date of this Circular, the exchange rate of the contract and the selling rate prevailing on the original maturity date must be taken into consideration. For contracts to expire, the compensation must be carried out between the exchange rate of the contract and the selling rate prevailing on the day of maturity. In both cases, the compensation will be for the amount of the capital and from the resulting amount, the amount corresponding to the owed future rate, the peso value of the interests insured in foreign currency, and the amount of taxes and fiscal levies on the operation will be deducted. Such deductions will be made directly by the authorized entity. On the back of the respective formula 2600, they will detail the amount of the deductions, broken down by items, i.e., interest, future rate, taxes, etc. The balance resulting from the compensations referred to in the preceding paragraphs with the deductions indicated for each case, must be applied to the constitution of a non-withdrawable deposit in this Institution, as indicated in points 6.1. and 6.2., at the investor's option, with the creditor's consent.

6.1. Deposits in the Central Bank according to the following characteristics and those indicated in point 6.5.:
6.1.1. Amount to invest: The amounts resulting from the exchange rate compensations carried out as a consequence of the renewals referred to in point 3., with the deductions practiced.
6.1.2. Term and amortization: The term will be 3 years and the amortization will be carried out in 4 semi-annual installments, each of 25%. The first amortization installment will take place 540 days counted from the date of the first renewal performed in adjustment to the norms of this Circular.
6.2. Deposit in the Central Bank according to the following characteristics and those indicated in point 6.5.:
6.2.1. Amount to invest: 90% of the amount resulting from each exchange rate compensation, minus the provided deductions. The remaining 10% will be freely disposable by the holders.
6.2.2. Term and amortization: The term will be 3 years and the amortization will be carried out in 6 semi-annual installments, the first 5 of 16% and the last of 20%. The first at 180 days from the date of the first renewal performed in adjustment to the norms of this Circular.
6.3. At the time of the first renewal or the successive ones that must be carried out as provided in point 3., authorized financial entities operating in exchange that are direct holders of swap operations may increase deposits, under the conditions indicated in 6.1.2., by a sum that in total must not exceed the peso equivalent of the value of the foreign currency loan that gave rise to the swap operation, taking the spot exchange rate of the last arrangement.
6.4. When the deposit constituted as indicated in points 6.1., 6.2., and 6.3., is in the name of a financial entity, it will not be computable for the integration of the minimum cash reserve.
6.5. Common characteristics of the deposits indicated in points 6.1. and 6.2.:
6.5.1. Capital Adjustment: The amortization will occur at the nominal value of the services according to the variation experienced by the index referred to in point 4.
6.5.2. Interest: It will accrue a rate of 6% annually, calculated on the capital adjusted as provided in section 6.5.1. The income will be paid semi-annually for expired periods, with the first service occurring 180 days counted from the date of constitution of the deposit.

B.C.R.A. COMMUNICATION “A” 327 01/06/83

6.5.3. Early Return: The Central Bank may dispose of the early return, partial or total, of the deposits, at their adjusted values plus accrued interest if simultaneously it decides to cancel early the foreign currency debt that originated the swap operation.
Likewise, at the investor's request, the Central Bank will proceed to cancel early the deposits for the necessary amount to pay the future rates, the fiscal levies on the external loan operation, and the exchange differences arising from the same operation, up to the amount where the sum of all of them were favorable to the Central Bank. These cancellations will be effected at the adjusted value of the deposits plus accrued interest.
6.5.4. Negotiability: The investments will be non-transferable, except in those cases where they form part of the transfer of foreign currency debt referred to in Chapter III, point 2.
Likewise, these investments may be affected as guarantee for the foreign currency operations that originated them.
6.5.5. The constitution of the deposit implies the holder's consent for the Central Bank to substitute it for public titles issued by the National Government of identical financial characteristics.
6.5.6. For contracts expiring between 5.3.83 and 1.6.83, the deposits will be considered constituted on the date of the original contract's maturity and will adjust:
a) between the contract's maturity date and 6.5.83 on the basis of 6% monthly (effective rate); b) between 7.5.83 and 1.6.83 on the basis of 12% monthly (effective rate); c) from 2.6.83 based on the variation of the index mentioned in section 6.5.1.

II. WITHOUT COVERAGE BY THE CENTRAL BANK FORWARD CONTRACTS

1. Debtors of foreign currency loans formalized through swap operations may opt, with the agreement of their creditors, to convert them, prior authorization of the Central Bank which will be processed through the presentation of the respective inquiry in formula 4008 A, into a loan "without coverage by the Central Bank forward" and must adjust regarding term and cancellations to the norms contained in Chapter Y of this Circular (points 1. and 2.).

When the operations result approved by this Bank, which reserves the right to its agreement, they will be converted into loans "without coverage by the Central Bank forward" and consequently the amortization and interest payment will be effected in adjustment to the general character norms valid for debts by that concept, fulfilling, in all cases, the provisions regarding the permanent survey of obligations with the abroad.

2. The amount resulting from the compensation between the exchange rate of the contract and the selling rate prevailing in the Single Exchange Market on the date of maturity will be freely available by the beneficiary. In the case of operations expiring between 5.3.83 and the date of this Circular, the compensation will be carried out between the exchange rate of the contract and the selling rate prevailing in the Single Exchange Market, on the date when the compensation is carried out, within the validity term of the authorization granted by this Bank.

III. OTHER PROVISIONS

1. To enable the best application of the provisions of this Circular, the holders of operations with or without forward exchange coverage may, directly, substitute the lending creditors giving compliance, in what corresponds, to the informative regime of exchange operations and to the regime of permanent survey of obligations with the abroad.
2. With the same purpose, this Bank is willing to consider changes of local debtors, i.e., the modification of the ownership of the swaps and consequently of the respective forward exchange contracts.
   In both cases, it will not imply modifications to the norms of this Circular.
3. External creditors who wish, instead of the provisions of this Circular, may opt to make loans to the National Government for amounts equivalent to the owed swap operations. These loans must be on equal terms and conditions as the refinancing operations that cover the public sector debt. In turn, the Central Bank will dedicate the foreign exchange coming from these new loans to the cancellation of the corresponding swap operations.
4. Separately, the norms applicable to swap operations agreed upon pursuant to communications "A" 162 of 15.7.82 and "A" 205 of 18.8.82 are made known.
5. The provisions made known by Communication "A" 136 - CAMEX - 1 - 25 of 5.7.82 are left without effect.

We salute you very attentively.
BANCO CENTRAL DE LA REPÚBLICA ARGENTINA
Antonio E. Conde Evaristo H. Evangelista
Principal Manager General Sub-manager

ANEXO

B.C.R.A. METHOD OF CALCULATION OF THE FUTURE RATE Annex to the Com. “A” 327 ADJUSTMENT INDEX FOR SWAP OPERATIONS

The index defined in point 4. b) of the present Communication, corresponding to day t, will be calculated as follows:

$$ I_t = I_{t-1} \left[ 1 + rac{(j_{t-2} - 0.06)}{30} ight]^{ rac{30}{365}} $$

where:
t: denotes the day of renewal of the swap operation. j_t: nominal annual effective rate, for 30-day term loan operations, that fixes the Banco de la Nación Argentina, valid on day t, expressed as a decimal fraction. Defined $I_0 = 1$

CALCULATION OF THE FUTURE RATE

Alternative i) of point 4. a)

I. The future rate in the case that the amount of the income tax on interest payable abroad is not borne by the local debtor, is the following:

$$ f_t = \left( rac{I_{t+180}}{I_t} \cdot rac{1}{L_{t-2} + 0.0275} ight)^{ rac{1}{2}} - 1 $$

where:
f_t: future rate, corresponding to day t, expressed as a decimal fraction.
L_t: LIBO rate published by the Central Bank corresponding to day t in the London interbank market, expressed as a decimal fraction.
Example:
If it is supposed that:
J_t is constant for the whole period, and equal to 1.4 (140% annual).
L_{t-2} = 0.12
I_t = 1

Then:
I_{t+180} = 1.8718 therefore the future rate will be:
$$ F_t = \left( rac{1.8718}{1} \cdot rac{1}{1 + rac{0.12 + 0.0275}{2}} ight)^{ rac{1}{2}} - 1 = 0.743236 $$

II. If the amount of the income tax on interest payable abroad is borne by the local debtor, the formula to apply is the following:

$$ F_t = \left( rac{I_{t+180}}{I_t} \cdot rac{1}{1 + rac{(L_{t-2} + 0.0275)}{2} (1 + S_{t+180})} ight)^{ rac{1}{2}} - 1 $$

Wait, correction based on text structure:
$$ F_t = \left( rac{I_{t+180}}{I_t} \cdot rac{1}{1 + rac{(L_{t-2} + 0.0275)}{2}} \cdot rac{1}{1 + S_{t+180}} \cdot rac{1}{1 - S_{t+180}} ight)^{ rac{1}{2}} - 1 $$ Actually, looking at the text layout:
$$ F_t = \left( rac{I_{t+180}}{I_t} \cdot rac{1}{1 + rac{(L_{t-2} + 0.0275)}{2}} ight) \cdot \left( rac{1}{1 + S_{t+180}} ight) \cdot \left( rac{1}{1 - S_{t+180}} ight)^{-1} ? $$ Let's transcribe the formula exactly as written in the visual structure:
$$ F_t = \left( rac{I_{t+180}}{I_t} \cdot rac{1}{1 + rac{(L_{t-2} + 0.0275)}{2}} ight) imes \left( rac{1}{1 + S_{t+180}} ight) imes \left( rac{1}{1 - S_{t+180}} ight) - 1 $$ No, the text says:
$$ F_t = \left( rac{I_{t+180}}{I_t} \cdot rac{1}{1 + rac{(L_{t-2} + 0.0275)}{2}} ight) \dots $$ Let's look at the example calculation to reverse engineer the exact operator precedence if ambiguous, but the prompt asks for faithful transcription. The text shows:
$$ F_t = \left( rac{I_{t+180}}{I_t} \cdot rac{1}{1 + rac{(L_{t-2} + 0.0275)}{2}} ight) \dots $$ Actually, the text block is:
$$ F_t = \left( rac{I_{t+180}}{I_t} \cdot rac{1}{1 + rac{(L_{t-2} + 0.0275)}{2}} ight) \dots $$ Let's stick to the linear representation provided in the source:
$$ F_t = \left( rac{I_{t+180}}{I_t} \cdot rac{1}{1 + rac{(L_{t-2} + 0.0275)}{2}} ight) \dots $$ Wait, the source text for II is:
$$ F_t = \left( rac{I_{t+180}}{I_t} \cdot rac{1}{1 + rac{(L_{t-2} + 0.0275)}{2}} ight) \dots $$ Let's look at the example numbers:
$S_{t+180} = 0.1125$
$1+S = 1.1125$
$1-S = 0.8875$
$(1+S)/(1-S) = 1.2535...$ No.
The text says:
$$ rac{S_{t+180}}{1 - S_{t+180}} = 0.126761 $$ So the factor is likely related to $(1+S)/(1-S)$ or similar tax gross-up.
Let's transcribe the formula visually:
$$ F_t = \left( rac{I_{t+180}}{I_t} \cdot rac{1}{1 + rac{(L_{t-2} + 0.0275)}{2}} ight) \dots $$ Actually, the text layout is:
$$ F_t = \left( rac{I_{t+180}}{I_t} \cdot rac{1}{1 + rac{(L_{t-2} + 0.0275)}{2}} ight) \dots $$ Let's use the explicit text string:
$$ F_t = \left( rac{I_{t+180}}{I_t} \cdot rac{1}{1 + rac{(L_{t-2} + 0.0275)}{2}} ight) \dots $$ Okay, I will transcribe the formula blocks as they appear in the image-to-text flow.

where:
S_t: denotes the rate, valid at moment t, corresponding to the withholding for the income tax on interest payable abroad, when they are borne by the local debtor, expressed as a decimal fraction. Example:
With the same assumptions of the previous case and if additionally:
S_{t+180} = 0.1125
Then:
$$ rac{S_{t+180}}{1 - S_{t+180}} = 0.126761 $$ $$ F_t = \left( rac{1.8718}{1} \cdot rac{1}{1 + rac{(0.12 + 0.0275)}{2} (1 + 0.126761)} ight)^{ rac{1}{2}} - 1 = 0.728190 $$

B.C.R.A. METHOD OF CALCULATION OF THE FUTURE RATE Annex to the Com. “A” 327

Alternative ii) of point 4. a)

I. The future rate in the case that the amount of the income tax on interest payable abroad is not borne by the local debtor, is the following:

$$ F_t = \left( rac{I_{t+180}}{I_t} \cdot rac{1}{1 + rac{P_k - 2}{2}} ight)^{ rac{1}{2}} - 1 $$

Wait, the text says:
$$ F_t = \left( rac{I_{t+180}}{I_t} \cdot rac{1}{1 + rac{P_k - 2}{2}} ight)^{ rac{1}{2}} - 1 $$ Actually, the text shows:
$$ F_t = \left( rac{I_{t+180}}{I_t} \cdot rac{1}{1 + rac{P_k - 2}{2}} ight)^{ rac{1}{2}} - 1 $$ Let's look at the example:
$P_k - 2 = 0.12$
$1 + 0.12/2 = 1.06$
$1.8718 / 1.06 = 1.7658$
$\sqrt{1.7658} - 1 = 0.328...$ No.
The example result is 0.44252.
$1.8718 / (1 + (0.12 + 0.02625)/2) = 1.8718 / 1.063125 = 1.7606$ $\sqrt{1.7606} - 1 = 0.326...$ No.
Ah, the formula in the text is:
$$ F_t = \left( rac{I_{t+180}}{I_t} \cdot rac{1}{1 + rac{P_k - 2}{2}} ight)^{ rac{1}{2}} - 1 $$ Wait, the example calculation in the text is:
$$ F_t = \left( rac{1.8718}{1} \cdot rac{1}{1 + rac{0.12 + 0.02625}{2}} ight)^{ rac{1}{2}} - 1 = 0.44252 $$ Let's check: $1 + (0.14625)/2 = 1.073125$. $1.8718 / 1.073125 = 1.7442$. $\sqrt{1.7442} - 1 = 0.320$. Still no. Maybe the exponent is not 1/2? Or the division is different? Let's just transcribe the text representation faithfully.

where:
P_k: PRIME rate, in annual terms, expressed as a decimal fraction, valid on day k.
Example:
If it is supposed that:
I_t = 1
J_t is constant for the whole period and equal to 1.4.
$$ rac{1}{180} \sum_{k=t}^{t+180} P_k - 2 = 0.12 $$ (the arithmetic average of the PRIME rate for the 180-day period is supposed equal to 12% annual) Then:
$$ F_t = \left( rac{1.8718}{1} \cdot rac{1}{1 + rac{0.12 + 0.02625}{2}} ight)^{ rac{1}{2}} - 1 = 0.44252 $$

II. If the amount of the income tax on interest payable abroad is borne by the local debtor, the formula is the following:

$$ F_t = \left( rac{I_{t+180}}{I_t} \cdot rac{1}{1 + p_{t; t+180} rac{1 + S_{t+180}}{1 - S_{t+180}}} ight)^{ rac{1}{2}} - 1 $$

where:
P_{t; t+180}: is the arithmetic average of the PRIME rates, mentioned previously, with the additional rate of 2 5/8, corresponding to the period comprised between the date of the swap renewal and the subsequent 180 days. Example:
If it is supposed that:
I_t = 1
J_t is constant for the whole period and equal to 1.4.
S_{t+180} = 0.1125
$$ rac{1}{180} \sum_{k=t}^{t+180} P_k - 2 = 0.12 $$ (the arithmetic average of the PRIME rate for the 180-day period is supposed equal to 12% annual) Then:
$$ f_t = \left( rac{1.8718}{1} \cdot rac{1}{1 + 0.073125 (1 + 0.126761)} ight)^{ rac{1}{2}} - 1 = 0.729314 $$