Valuation of Public Sector Assets. Modifications.

“2004 - Year of the Argentine Antarctic”

BANCO CENTRAL DE LA REPÚBLICA ARGENTINA
COMMUNICATION “A” 4084 30/01/2004

TO FINANCIAL ENTITIES:

Ref.: Circular
LISOL 1 - 410
OPRAC 1 - 566
CONAU 1 - 632
Valuation of public sector assets. Modifications.

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We address you to inform you that this Institution has adopted the following resolution:

“1. Replace point 1 of Communication “A” 3911 with the following:

“Establish that the following assets held in portfolio or incorporated in the future by entities shall be recorded at their present value according to the guidelines established in point 2 of this resolution or at their “technical value” -updated amount, if applicable, by the “Reference Stabilization Coefficient” plus accrued interest according to contractual conditions-, whichever is lower:
a) “Guaranteed Loans” issued by the National Government under Decree 1387/01. b) Public bonds that have not been subject to minimum capital requirement for market risk due to not meeting the established requirements for such, usual quotation in markets for relevant transactions, etc. -except the instruments detailed in item v)-. c) Promissory notes issued by the Fiduciary Fund for Provincial Development under Decree 1579/02, Resolution 539/02 of the Ministry of Economy and complementary norms, and other loans to the non-financial public sector. d) “Guaranteed Bonds” issued by the Fiduciary Fund for Provincial Development received under Decree 1579/02, Resolution 539/02 of the Ministry of Economy and complementary norms. The use of this valuation method will be optional -in replacement of market value- and cannot be used for incorporations not linked to the aforementioned provisions.

The aforementioned choice may be subsequently modified by the “market value” criterion, which, once used, must encompass the entire portfolio and will have the character of a definitive option.

Promissory notes that financial entities have received or receive in exchange for compensation bonds according to the option contained in article 28 of Decree 905/02, may be maintained at their “technical value”, with the application of present value being optional according to what was established above. The exercise of that option will have definitive character.

Assets delivered as guarantee for advances granted by the Central Bank of the Republic of Argentina for the subscription of the bonds provided for in articles 10, 11 and 12 of Decree 905/02, ratified by article 71 of Law 25.827, may be excluded from the preceding treatment, at the definitive option of the entities -for part or all of the advances- given the provisions of article 17 of the aforementioned decree, in which case they will be recorded at the value admitted for the purposes of the constitution of the guarantees.

Consequently, that valuation criterion is not applicable in the following cases:
i) Bonds that entities have accounted for in investment accounts and maintained the corresponding capital requirement. ii) Compensation bonds received according to what is established in articles 28 and 29 of Decree 905/02 that can be maintained at technical value (point 3.6. of Section 3. of the norms on “Holdings of securities in investment accounts”). iii) Bonds that must be valued according to their market quotation. iv) Bills and other titles issued by the Central Bank of the Republic of Argentina. v) External Bills of the Argentine Republic in United States dollars “Encuesta + 4.95% 2001-2004” and “Badlar + 2.98% 2001-2004”, “Tax Credit Option Certificates”, “Fiscal Credit Certificates”, including coupons issued under Decree 979/01, and other instruments of the non-financial public sector that are matured and unpaid. All these instruments, from January 2004, will be recorded at the book value at 31.12.03 or by the amount obtained -if this were lower- by the application to the nominal value corresponding to that date, in its case net of write-downs or of the proportional part of transformation into tax options that could be exercised subsequently, of the lowest percentage resulting from the net present value method with respect to the assets covered by that criterion -currently, items c) and d) of this point-.”

2. Replace point 3 of Communication “A” 3911 with the following:

“Establish that the sum of the differences between the present value determined for March 2003 -or subsequent periods- for each instrument included, according to the preceding points or the technical value -the lower- and the respective “theoretical values” as defined in point 4 of this resolution, will be reflected in an asset regularizing account that will be enabled for this purpose, to the extent that the final result is positive. If the result were negative, it will be charged to results.

Monthly, the balance yielded by that account will be adjusted based on the amount determined by performing the calculation of the sum of the differences between said concepts until exhausted. If there is an unapplied remainder, it will be charged to results.

Once said balance is exhausted, the differences -positive or negative- that are subsequently recorded by the valuation according to the “present value” criterion will be charged directly to results.

When amortizations of the instruments occur, if there is a balance in the regularizing account, this will be adjusted with a counterpart in results for up to the amount obtained by applying the proportion that represents the amortization, calculated on the nominal value, to the difference between the book value (present value or technical value, the lower) and the theoretical value of the instrument.

The updates by the “Reference Stabilization Coefficient” “CER” that, if applicable, are applied to the theoretical values and the accrued interest according to the issuance or contractual conditions of the instruments will be charged to results.

In the cases of incorporations of included assets subsequent to 28.2.03, without prejudice to the observance of the regulations that result applicable for it, the registration of the differences originating from the application of the procedure referred to in this point will be made in a specific regularizing account, distinct from that used to reflect the effects of the calculations regarding the holdings at 28.2.03.”

3. Replace point 4 of Communication “A” 3911 with the following:

“Establish that the “theoretical value” of the instruments that will be considered for these purposes will be the result of applying the guidelines detailed below:

a) Holdings at 28.2.03:
i) Guaranteed Loans issued under Decree 1387/01:
The balance registered at 28.2.03 in the accounting -capitals- for each instrument net of the asset regularizing account according to point 4 of Communication “A” 3366 (accounts 131140 and 131193, respectively) will be considered.
At the end of each month, if applicable, the determined amount -net of the proportion of amortizations that would have corresponded- will be updated by the “Reference Stabilization Coefficient” adding the corresponding accrued interest according to contractual conditions, to establish the respective theoretical value. As a consequence of the new valuation procedure, in March 2003 the balance registered in that regularizing account (code 131193) must be reversed.

ii) Promissory Notes or Bonds (according to option) issued by the Fiduciary Fund for Provincial Development under Decree 1579/02, Resolution 539/02 of the Ministry of Economy and complementary norms.
Initially, the amount at which the respective instruments that were delivered in exchange were registered at 28.2.03 will be considered, updated, if applicable, by the “Reference Stabilization Coefficient” at the end of each month, considering the proportion of amortizations that would have corresponded and adding the corresponding accrued interest according to the issuance conditions.

iii) Others.
If applicable, it will be updated by the application of the “Reference Stabilization Coefficient”, considering eventual amortizations and adding the corresponding accrued interest according to the issuance or contractual conditions.

b) Incorporations subsequent to 28.2.03:
The incorporation value in the asset will be considered, which, if applicable, will be updated by the “Reference Stabilization Coefficient”, considering eventual amortizations and adding the corresponding accrued interest according to the issuance or contractual conditions.”

4. Clarify that public bonds that would have been subject to minimum capital requirement for market risk -including holdings accounted for in investment accounts- regarding which this Institution has ceased or ceases to report the corresponding daily volatility for not meeting the requirements for it -usual quotation in markets for relevant transactions, etc.-, must be recorded in the month immediately following that circumstance or of the dissemination of this resolution, as applicable, as “non-quoting” assets.

They will be valued at the last available market price until the month in which they ceased to appear in the relevant list. Subsequently, if that condition is maintained, to reflect decreases in any quotations that are recorded, a provision for devaluation risk will be constituted for the resulting differences. These latter amounts cannot be reversed even if any quotation reflects a higher price, unless the bond can again be considered “with quotation” by meeting those requirements or because the asset is written off.

Bonds that were accounted for in investment accounts regarding which it is necessary to proceed as indicated above, cannot be reincorporated into the regime in the event that they resume the possibility of observing capital requirement for market risk.

5. Order that the accrued interest since December 2001 regarding debt instruments eligible for the sovereign debt restructuring agreement, issued prior to 31.12.01, must be adjusted in their entirety with a counterpart in a regularizing account.

6. Replace, with effect from December 2003, in Annex II to Communication “A” 2140, the text referred to in point 6 of Communication “A” 3911, with the following:

“1... public bonds, except for Bills and other titles issued by the Central Bank of the Republic of Argentina”

We send you attached the updated text on the Valuation of Guaranteed Loans issued by the National Government and other instruments of debt of the non-financial public sector and the sheets that in replacement of those previously provided correspond to incorporate in the ordered text of the norms on “Holdings in securities in investment accounts”.

We salute you very attentively.

BANCO CENTRAL DE LA REPUBLICA ARGENTINA
Alfredo A. Besio
Manager of Issuance
José Rutman
Main Manager of Norms

ANNEX

B.C.R.A.
Valuation of Guaranteed Loans issued by the National Government and other instruments of debt of the non-financial public sector.
(Updated text according to Communications “A” 3911, 4084 and “B” 7782)
Annex to
Com. “A” 4084

1. Establish that the following assets held in portfolio or incorporated in the future by entities shall be recorded at their present value according to the guidelines established in point 2 of this resolution or at their “technical value” -updated amount, if applicable, by the “Reference Stabilization Coefficient” plus accrued interest according to contractual conditions-, whichever is lower:
   a) “Guaranteed Loans” issued by the National Government under Decree 1387/01. b) Public bonds that have not been subject to minimum capital requirement for market risk due to not meeting the established requirements for such, usual quotation in markets for relevant transactions, etc. -except the instruments detailed in item v)-. c) Promissory notes issued by the Fiduciary Fund for Provincial Development under Decree 1579/02, Resolution 539/02 of the Ministry of Economy and complementary norms, and other loans to the non-financial public sector. d) “Guaranteed Bonds” issued by the Fiduciary Fund for Provincial Development received under Decree 1579/02, Resolution 539/02 of the Ministry of Economy and complementary norms. The use of this valuation method will be optional -in replacement of market value- and cannot be used for incorporations not linked to the aforementioned provisions.

The aforementioned choice may be subsequently modified by the “market value” criterion, which, once used, must encompass the entire portfolio and will have the character of a definitive option.

Promissory notes that financial entities have received or receive in exchange for compensation bonds according to the option contained in article 28 of Decree 905/02, may be maintained at their “technical value”, with the application of present value being optional according to what was established above. The exercise of that option will have definitive character.

Assets delivered as guarantee for advances granted by the Central Bank of the Republic of Argentina for the subscription of the bonds provided for in articles 10, 11 and 12 of Decree 905/02, ratified by article 71 of Law 25.827, may be excluded from the preceding treatment, at the definitive option of the entities -for part or all of the advances- given the provisions of article 17 of the aforementioned decree, in which case they will be recorded at the value admitted for the purposes of the constitution of the guarantees.

Consequently, that valuation criterion is not applicable in the following cases:
i) Bonds that entities have accounted for in investment accounts and maintained the corresponding capital requirement. ii). Compensation bonds received according to what is established in articles 28 and 29 of Decree 905/02 that can be maintained at technical value (point 3.6. of Section 3. of the norms on “Holdings of securities in investment accounts”). iii) Bonds that must be valued according to their market quotation.

B.C.R.A.
Valuation of Guaranteed Loans issued by the National Government and other instruments of debt of the non-financial public sector.
(Updated text according to Communications “A” 3911, 4084 and “B” 7782)
Annex to
Com. “A” 4084

iv) Bills and other titles issued by the Central Bank of the Republic of Argentina. v) External Bills of the Argentine Republic in United States dollars “Encuesta + 4.95% 2001-2004” and “Badlar + 2.98% 2001-2004”, “Tax Credit Option Certificates”, “Fiscal Credit Certificates”, including coupons issued under Decree 979/01, and other instruments of the non-financial public sector that are matured and unpaid. All these instruments, from January 2004, will be recorded at the book value at 31.12.03 or by the amount obtained -if this were lower- by the application to the nominal value corresponding to that date, in its case net of write-downs or of the proportional part of transformation into tax options that could be exercised subsequently, of the lowest percentage resulting from the net present value method with respect to the assets covered by that criterion -currently, items c) and d) of this point-.

2. Establish that for the purposes of determining the present value of the portfolio included in point 1., from the March 2003 balances onwards, the cash flows (amortization and interest) of the mentioned instruments, according to the contractual conditions fixed in each case -contemplating, if applicable, the accumulated accrual at the end of each month by the application of the “Reference Stabilization Coefficient”-, will be discounted at the interest rates established in the following schedule:

Period	Annual Nominal Rate
March - December/03	3.00 %
January - June/04	3.25 %
July - December/04	3.50 %
January - June/05	4.00 %
July - December/05	4.50 %
January - December/06	5.00 %
January - December/07	5% + 0.5 (TM - 5 %)
From January 2008	TM

where:
TM: average market rate -expressed in percentage- that will be reported by this Institution determined based on the internal rates of return arising from the quotations in the market of national public bonds of similar average maturity (“modified duration”), grouped in tranches (zones) according to that maturity.

For the calculation of the present value, the number of calendar days from each month-end to the maturity of each amortization and/or interest service will be considered.

The interest rate assigned for each tranche of the preceding schedule will be the only one that must be used to calculate the present value of the entire cash flow of the assets included, in each of the months of the corresponding periods, regardless of the dates on which the pertinent services and/or payments mature.

B.C.R.A.
Valuation of Guaranteed Loans issued by the National Government and other instruments of debt of the non-financial public sector.
(Updated text according to Communications “A” 3911, 4084 and “B” 7782)
Annex to
Com. “A” 4084

3. Establish that the sum of the differences between the present value determined for March 2003 -or subsequent periods- for each instrument included, according to the preceding points or the technical value -the lower- and the respective “theoretical values” as defined in point 4 of this resolution, will be reflected in an asset regularizing account that will be enabled for this purpose, to the extent that the final result is positive. If the result were negative, it will be charged to results.

Monthly, the balance yielded by that account will be adjusted based on the amount determined by performing the calculation of the sum of the differences between said concepts until exhausted. If there is an unapplied remainder, it will be charged to results.

Once said balance is exhausted, the differences -positive or negative- that are subsequently recorded by the valuation according to the “present value” criterion will be charged directly to results.

When amortizations of the instruments occur, if there is a balance in the regularizing account, this will be adjusted with a counterpart in results for up to the amount obtained by applying the proportion that represents the amortization, calculated on the nominal value, to the difference between the book value (present value or technical value, the lower) and the theoretical value of the instrument.

The updates by the “Reference Stabilization Coefficient” “CER” that, if applicable, are applied to the theoretical values and the accrued interest according to the issuance or contractual conditions of the instruments will be charged to results.

In the cases of incorporations of included assets subsequent to 28.2.03, without prejudice to the observance of the regulations that result applicable for it, the registration of the differences originating from the application of the procedure referred to in this point will be made in a specific regularizing account, distinct from that used to reflect the effects of the calculations regarding the holdings at 28.2.03.

4. Establish that the “theoretical value” of the instruments that will be considered for these purposes will be the result of applying the guidelines detailed below:

a) Holdings at 28.2.03:
i) Guaranteed Loans issued under Decree 1387/01:
The balance registered at 28.2.03 in the accounting -capitals- for each instrument net of the asset regularizing account according to point 4 of Communication “A” 3366 (accounts 131140 and 131193, respectively) will be considered.
At the end of each month, if applicable, the determined amount of the theoretical value -net of the proportion of amortizations that would have corresponded- will be updated by the “Reference Stabilization Coefficient” adding the corresponding accrued interest according to contractual conditions, to establish the respective theoretical value. As a consequence of the new valuation procedure, in March 2003 the balance registered in that regularizing account (code 131193) must be reversed.

B.C.R.A.
Valuation of Guaranteed Loans issued by the National Government and other instruments of debt of the non-financial public sector.
(Updated text according to Communications “A” 3911, 4084 and “B” 7782)
Annex to
Com. “A” 4084

ii) Promissory Notes or Bonds (according to option) issued by the Fiduciary Fund for Provincial Development under Decree 1579/02, Resolution 539/02 of the Ministry of Economy and complementary norms.
Initially, the amount at which the respective instruments that were delivered in exchange were registered at 28.2.03 will be considered, updated, if applicable, by the “Reference Stabilization Coefficient” at the end of each month, considering the proportion of amortizations that would have corresponded and adding the corresponding accrued interest according to the issuance conditions.

iii) Others.
If applicable, it will be updated by the application of the “Reference Stabilization Coefficient”, considering eventual amortizations and adding the corresponding accrued interest according to the issuance or contractual conditions.

b) Incorporations subsequent to 28.2.03:
The incorporation value in the asset will be considered, which, if applicable, will be updated by the “Reference Stabilization Coefficient”, considering eventual amortizations and adding the corresponding accrued interest according to the issuance or contractual conditions.

HOLDINGS OF SECURITIES IN INVESTMENT ACCOUNTS. BCRA.

Section 1. Affected securities.
Version: 4th. COMMUNICATION “A” 4084
Validity:
30/01/2004

Debt securities representing domestic debt subject to capital requirements for market risk incorporated as of 12/31/02, with the exception of those received by financial entities as a result of the compensation provided for in Articles 28 and 29 of Decree 905/02.

Repo operations on these holdings will be admitted without affecting their book value when the counterparty is any of the following:

• other financial entities from the country.
• a foreign bank that holds an international rating of “A” or higher granted by one of the international rating agencies admitted according to the rules of “Evaluation of Financial Entities”.

Repo operations on national public securities with the Central Bank of the Republic Argentina will also be admitted.

Securities for which this Institution ceases to report the corresponding daily volatility because they do not meet the requirements for doing so - habitual quotation in markets through relevant transactions, etc. - must be removed from this regime starting from the month immediately following that circumstance (they will be considered “without quotation”) and cannot be reincorporated in the future into these accounts, even if they regain the possibility of observing capital requirements for market risk.

BCRA.

ORIGIN OF THE PROVISIONS INCLUDED IN THE ORDERED TEXT OF THE HOLDINGS OF SECURITIES IN INVESTMENT ACCOUNTS REGIME

ORDERED TEXT | ORIGIN NORM
Section | Point | Paragraph | Comm. | Annex | Point | Paragraph | Observations
1. | “A” | 2793 | único | 1. | According to Comm. “A” 3039 “A” 3857 and “A” 4084
2. | “A” | 2793 | único | 2. | According to Comm. “A” 3039
3.1. | 1º | “A” | 3039 | According to Comm. “A” 3278
| 2° | “A” | 2793 | único | 4. | 2°
3.2. | | “A” | 3039 |
3.3. | | “A” | 3039 | According to Comm. “A” 3083
3.4. | | “A” | 2793 | único | 4. | 3°
3.5. | | “A” | 2793 | único | 4. | 4° According to Comm. “A” 3039 3.
3.6. | | “A” | 3785 |
4. | | “A” | 2965 | According to Comm. “A” 3083
5. | 5.1. and 5.2. | “A” | 2793 | único | 3. |