Volume 4, Number 22, Page 4

Colombia

Foreign Currency Loans

Foreign Exchange Regime Modified

by Luz Patricia Toro

On May 19, 1997, Resolution 05 of 1997 of the Board of Directors of the Central Bank modified the Colombian Foreign Exchange Regime contained in Resolution 21 of 1993. The purposes of "Resolution 05" are to increase the cost to Colombian residents obtaining foreign currency loans, discourage inflows of foreign capital, and avoid the revaluation of the Colombian peso. Among the most relevant changes introduced by Resolution 05 are the following:

New deposit rules as a condition to drawdowns

Foreign exchange regulations applicable prior to the issuance of Resolution 05 provided a five-year/40% rule: foreign indebtedness operations with a term of 60 months or less or with a term of more than 60 months but with an amortization of more than 40% during the first 60 months required the posting of a deposit in an amount equivalent to 50% of the indebtedness or of the amounts amortized in excess of the 40%, respectively. This rule was modified by Resolution 05 pursuant to which any foreign indebtedness transaction, including free trade zone credit operations with a term of more than six months, is subject to the obligation of posting a deposit as indicated below.

Effective May 20, 1997, drawdowns of all foreign credits not registered with the Central Bank prior to such date will be subject and conditioned to a cash reserve or deposit with the Central Bank equivalent to 30% of the value of the drawdown. Such deposit shall be made for a period of eighteen (18) months, but may be totally or partially redeemed in advance, at a discount determined by the Central Bank. The deposit shall be made in Colombian pesos converted at the Exchange Representative Market Rate applicable in the date of its constitution. It is important to point out that the Central Bank will not recognize any indexation to the deposited money during the eighteen-month period, at the end of which the deposit will be redeemed at its nominal Colombian pesos value. The deposit receipt issued by the Central Bank will be non-negotiable.

Exemptions to the new deposits rules

The only foreign obligations exempted from deposit shall be: (1) credits in foreign currency with the purpose of financing Colombian foreign investments abroad and payment of personal expenses discharged with international credit cards ; (2) credits to finance exports, granted in foreign currency by authorized intermediaries with resources of BANCOLDEX and with a term of less than one year; (3) import financing operations with a period of less than six months; (4) financing of capital goods ("bienes de capital") defined by the Central Bank, which may comprise international leasing transactions; (5) export financing operations through prepayments with a delivery period of less than four months; and (6) financing operations between intermediaries of the Exchange Market and financial foreign entities in order to carry out operations authorized to the former.

It is worth mentioning that the deposit for indebtedness operations to prefinance exports shall be equivalent to 15% of the value of the drawdown and for a term of 36 months.

New foreign loans

Article 29 of Resolution 21 of 1993 was repealed and therefore the registration of foreign indebtedness operations is no longer required. Such registration requirement was also eliminated for other financing transactions, such as trade financing and the granting of credit to foreign residents through Exchange Market intermediaries.

In order to ensure the compliance with foreign exchange regulations formerly controlled through the registration procedure, the Exchange Market intermediaries shall hereinafter verify the fulfillment of requirements such as the posting of the deposit and the nature of the foreign financial entities granting the credits, in accordance with a list provided by the Central Bank. In addition, the Central Bank has the power to request information from time-to-time in order to audit indebtedness operations ; it will also determine which modifications to the conditions of the indebtedness shall be informed to it.

Terms and conditions for public external debt

Any foreign indebtedness transactions carried out by public entities (national, territorial and descentralized entities) will be subject to the mentioned deposit rules.

The maximum interest rates applicable to public external debt were fixed in PRIME plus 50 basis points or LIBOR plus 300 basis points. These maximum rates are also applicable to indebtedness transactions carried out through the placement abroad of debt securities issued by the Nation.

Transition rules for registered loans

Foreign loans already registered with the Central Bank may be prepaid, in whole or in part, with the prior authorization of the Central Bank. If such authorization is not given, prepayment is permitted upon the posting of the deposit mentioned in 1 above.

Any amendment regarding the debtor, amount of the credit and/or term of redemption will also require the posting of a deposit. However, the amendments resulting from spin-off of the borrower, mergers, liquidation, bankruptcy proceedings, or the change of debtor in credits contracted by public entities with multilateral financial institutions will be exempted from the posting of the deposit.

Amendments to the drawdown schedule would also require the posting of the deposit, except for credits with a repayment term of more than sixty months, prior authorization of the Central Bank.

The payment in kind ("dación en pago") in order to discharge credit obligations requires prior authorization from the Central Bank, regardless of the moment in which the indebtedness was entered into. Such authorization assures the foreign exchange channel to remit abroad the proceeds of the sale from any asset received in lieu of payment. The possibility of payment in kind is also available for new loans.

Luz Patricia Toro is with the Colombian law firm of Gomez Pinzon & Asociados.