Treatment of Primary Subscription of National Public Securities in Pesos with Maturity of 5 Years or More and Fixed Rate Issued from June 1, 2007

"2007 - Year of Road Safety"
CENTRAL BANK OF THE ARGENTINE REPUBLIC
COMMUNICATION "A" 4676 05/06/2007
TO FINANCIAL ENTITIES:
Ref.: Circular
LISOL 1 - 471
CONAU 1 - 812
Treatment of the primary subscription of national public securities in pesos, with a term equal to or greater than 5 years and at a fixed rate, issued from 1.6.07.

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We address you to inform you that this Institution adopted the following resolution:
"1. Incorporate as the last paragraph of point 1. of Communication "A" 4455 (modified by point 1. of Communication "A" 4546) the following:
"Likewise, the position of national public securities denominated in pesos, with a term equal to or greater than 5 years, at a fixed rate -without adjustment by the Reference Stabilization Coefficient" ("CER")- and issued from 1.6.07, may be imputed to the margin for the realization of "buy-sell or intermediation operations" without observing the 15% limit of computable patrimonial responsibility referred to in the second paragraph of this point, provided that it does not generate increases in admitted excesses regarding the risk fragmentation limits in relation to operations with the non-financial public sector, according to what is provided in point 8. of Communication "A" 3911 (text according to point 2. of this communication)."
2. Replace point 8. of Communication "A" 3911 (text according to point 2. of Communication "A" 4546) with the following:
"8. Establish that the excesses to the relationships referred to in point 7. of this resolution and 2.2.1. of Annex II to Communication "A" 2140 originated exclusively in the application of the new limits and conditions for computing financings, will not constitute breaches to the extent that the excesses:
a) come from operations pre-existing to 31.3.03 b) are determined or increase what is configured according to item a), by the receipt of:
i) compensation bonds or promissory notes pursuant to articles 28 and 29 of Decree 905/02 or, eventually, by the application of other specific provisions, subsequent to that date, derived from Law 25.561 of Public Emergency and Reform of the Exchange Regime. ii) bonds issued within the framework of the Mortgage Refinancing System established by Law 25.798.

-2- iii) bonds issued under the conditions established by Decree 1735/04 for the restructuring of Argentine debt, in exchange for eligible titles pre-existing to 31.3.03. c) arise from new operations, provided that excesses are previously registered according to items a) or b), and originate -solely and exclusively- in the granting of financings to the non-financial public sector with funds coming from capital amortization services, considering the effect of the application of the "Reference Stabilization Coefficient" ("CER"), if applicable, or of the modification of the peso equivalent if they are operations in foreign currency, without prejudice to the observance of the safeguard referred to in item c) of point 9. of this resolution and, eventually -according to the analysis carried out- of what is provided in its items a) and b). To this effect, amounts applied to the primary subscription of National Government debt titles up to 180 calendar days in advance with respect to the maturity date of the capital amortization services of public sector obligations are included, provided they correspond to sums to be received. For this purpose, in the case of obligations with "CER" (Reference Stabilization Coefficient) clause, the last index of the "CER" made known without exceeding that of the day to be used in accordance with the conditions fixed for those obligations will be taken into account, for purposes of determining the value of the amortization to mature. In the case of amortizations to mature of obligations in foreign currency and for the purposes of their eventual application to the subscription of titles in pesos, those will be converted based on the reference exchange rate for United States dollars reported by the Central Bank corresponding to the day prior to the date of formulation of the subscription offer. The subsequent application of funds coming from capital amortization services may be carried out within the 180 calendar days following the maturity date, for purposes of considering it included in the provisions of the first paragraph of this item, including primary subscription and acquisitions in the secondary market of titles and other financings. This period will be extended, until 30.6.09, by an additional 180 days for the case of the primary subscription of national public securities denominated in pesos, with a term equal to or greater than 5 years, at a fixed rate -without adjustment by the Reference Stabilization Coefficient" ("CER")- issued from 1.6.07. If they are services paid in foreign currency that are applied to operations in pesos, they will be converted at the exchange rate mentioned in the preceding paragraph on the day prior to the date of the operation. Regarding the amortization services of the compensation bonds referred to in articles 28 and 29 of Decree No. 905/02, whose crediting is pending or has been carried out after the maturity, due to the process of verification of the amount to be compensated within
the framework of that legal device, the period referred to in the preceding paragraph may be counted from the date of effective collection. d) correspond to buy-sell or intermediation operations of national public titles susceptible to being imputed to the margin admitted for such effect of up to 15% of the computable patrimonial responsibility of the immediate previous month and always that excesses are previously registered according to the previous items.

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However, financings cannot be agreed upon in cases where the relationship of the included operations with respect to the RPC determined at 31.3.03 is exceeded, due to decreases in this latter parameter, until that relationship is re-established, computing for this purpose the effect of the "CER" and of the variation of the exchange rate. Taking into account the date of entry into force of the new limits for assistance to the non-financial public sector, entities must consider -in order to determine the relationships at 31.3.03- the operations included according to the established definitions, computing the amounts -with respect to nominal values or effectively disbursed-that arise from the application of the "Reference Stabilization Coefficient" and by the variations in the exchange rate, in the case of operations in foreign currency."
3. Establish that the primary subscription of national public securities denominated in pesos, with a term equal to or greater than 5 years, at a fixed rate -without adjustment by the Reference Stabilization Coefficient" ("CER")- that financial entities carry out from 1.6.07 can be accounted for, totally or partially, in the following manner at the option of the entity:

• by the general criterion, at their market value, or
• at their cost value, which will be increased monthly based on the internal rate of return resulting from the discount rate that equates the present value of the cash flow with the value of the investment for the primary subscription of said titles.
  In the event of opting for the second criterion, when the market value is lower than the book value, said accrual will be imputed -cumulatively- with a counterpart in a regularization account created for this effect, until the book value is equal to the market value.
  Such regularization account will be derecognized with imputation to results to the extent that its balance exceeds the positive difference between the market value and the book value.
  When amortizations of the instruments occur, if there is a balance in the regularization account, it will be adjusted with a counterpart in results for up to the amount obtained by applying the proportion represented by the amortization.
  When opting to transfer, totally or partially, the holdings registered by this valuation criterion to the margin for the realization of "buy-sell or intermediation operations", those holdings must remain accounted for at market value, their subsequent imputation to this valuation regime not being admitted. The balance recorded by the regularization account will be cancelled on 30.6.09, so from 1.7.09 onwards, they will be recorded at their market value. Repo operations of these holdings will be admitted without affecting their book value when the counterparty is any of the following:
• other financial entities in the country.
• foreign bank that has international rating "A" or higher granted by one of the international rating agencies admitted according to the norms of "Evaluation of financial entities".
• Central Bank of the Argentine Republic."

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We clarify that the titles imputable to the buy-sell or intermediation margin referred to in point 1. of this communication, which must be accounted for at market value, are not included among the concepts reached by the coefficient "alpha1" applicable in the determination of minimum capital for credit risk (point 9.5. of Section 9. of the norms on "Minimum Capital of Financial Entities") and, in accordance with general regulations, when registering volatility they are included in the provisions that determine requirement for market risk. Likewise, we remind you, regarding the titles in which the specific valuation procedure referred to in point 3. of this communication was opted for, the validity of point 7 of the Annex to Communication "A" 4455, which provides for disclosure in notes to quarterly and annual financial statements regarding the criterion employed and the quantification of the difference in relation to their valuation at market prices. We salute you very respectfully. CENTRAL BANK OF THE ARGENTINE REPUBLIC Darío C. Stefanelli Juan C. Isi Manager of Emission of Norms Principal Manager of Emission and Regulatory Inquiries