The Central Bank will allow the distribution of dividends from profits generated starting in fiscal year 2025, although the remittance of retained earnings from previous years will remain restricted.

Santiago Bausili, president of the Central Bank, announced it will be possible to “repatriate profits from fiscal years starting this year.”

However, the “stock” of retained earnings from previous fiscal years may not be freely remitted. “For companies’ retained earnings, financial debts accumulated during the years of exchange controls, and commercial debts before December 2023, we are working on a new series of BOPREAL bonds, and will allow companies to unwind those positions through that channel, as we did a little over a year ago.”

BOPREAL bonds are dollar-denominated instruments issued by the Central Bank, which can be purchased in pesos at the official exchange rate and sold in the parallel market at the blue-chip swap rate (“Contado con liquidación” or CCL). 

This mechanism was designed by the current economic team to address commercial debt, which reached approximately US$42 billion, according to official figures. They allowed importers with unpaid commercial debts to obtain the dollars needed to settle their obligations by selling the bonds on the secondary market.

Shortening payment terms: Imports and capital goods

Bausili also explained that the government has decided to shorten the waiting period to access the foreign exchange market for import payments. “Until now, an importer could only access dollars 30 days after the goods arrived in Argentina. From now on, they won’t have to wait 30 days — they will be able to access dollars when the goods arrive in the country.”

Small and medium-sized companies will be allowed to purchase dollars to pay for imports as soon as the goods are shipped from the port of origin.

Access to dollars for the payment of capital goods will also have shorter waiting periods. “Until now, they could only pay a 20% advance. From now on, they can pay 30% in advance, 50% when the capital goods are shipped from origin, and 20% upon arrival in Argentina,” Bausili said.

For service imports, access to the official market will be allowed from the moment the service is rendered, as opposed to the previous 30-day waiting period.

For services imported from related companies, access to the official exchange rate will be shortened from 180 to 90 days.

The Central Bank announced in a release that it would “eliminate, as a one-time measure,” the restriction that prevented companies from accessing the official foreign exchange market for 90 days if they had bought or sold financial dollars (MEP or CCL).

Tight monetary policy and currency competition

Bausili stated that the Central Bank will maintain a tight monetary policy supported by fiscal austerity. “We continue in a framework where there is no money printing to finance the government or to pay interest on Central Bank liabilities,” he said.

Given the modification of the exchange rate regime that will take effect starting Monday, the Central Bank president explained that “the money supply will only change at the extremes of the bands.”

“When people need pesos and cannot obtain them, we will likely see an appreciation of the exchange rate within the bands. When the peso reaches the lower limit of the bands, the Central Bank will buy dollars and issue pesos, interpreting that there’s a demand for those pesos in society,” he explained.

Conversely, when the exchange rate reaches the “ceiling of the band,” “we assume that in this currency competition, people prefer dollars. The Central Bank will interpret that there is a fall in demand for pesos, so it will sell dollars.”

Economy Minister Luis Caputo reiterated the idea of currency competition. “In our currency competition framework, remonetization can occur in either pesos or dollars,” he said. 

“For this economy, it does not matter what currency it happens in — what is important is that the economy be remonetized.”

Retained dividends

“The number is very large, enormous,” Bausili said when asked about the amount of dividends retained by companies due to exchange restrictions.

Bausili explained that the “stock of dividends is difficult to estimate.” Given Argentina’s high inflation, companies can perform “inflation adjustments” within their accounting, but not all balance sheet items can be updated. Moreover, some companies decided to protect part of their profits by investing in real estate, which differs from holding profits in more liquid instruments.

“Beyond looking at those enormous figures, which is why we are cautious in managing those stocks, what we look at is how companies have saved those balances of pending distributions,” he said.

Other announcements

Today, the national government announced “Phase 3” of its economic program, framed within an agreement with the International Monetary Fund (IMF), under which it will receive an initial disbursement of US$12 billion in April.

Additionally, starting Monday, a new exchange rate scheme will come into force, which involves a “floating” exchange rate within a trading band of 1,000 to 1,400 pesos per dollar, which will be updated by 1% each month (-1% for the lower band and +1% for the upper band).
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