Volume 4, Number 34, Page 1

Colombia's Foreign Currency Payment Regime Changes

by Emilio Wills

Last month’s passage of Resolution 11 by the board of directors of the Central Bank (Banco de la República) increased the opportunity to effect payments in foreign currency due to obligations among residents in Colombia. Resolution 11 (dated Oct. 3) supplements the exchange regime contained in Resolution 21 of 1993, which permitted, in exceptional circumstances, certain payments in foreign currency.

The following is a presentation of the regime applicable to obligations in foreign currency undertaken by residents in Colombia, as well as the regulation of their payment according to the exchange regime now in force.

As a general rule, the exchange regime proscribed residents in Colombia from using foreign currency to pay for obligations undertaken between them. Pursuant to Resolution 21 of 1993, any obligation between residents in Colombia, agreed upon in foreign currency, must be paid in Colombian legal currency, using both the exchange rate and the conversion date agreed upon by the parties. In the event no conversion rules are agreed upon, such conversion will be governed by the market’s representative exchange rate in force on the date of the obligation agreement.

The Central Bank’s board of directors introduced a number of exceptions to this regime, enabling residents to use foreign currency domestically to pay for certain obligations, including the following: freights and international transportation tickets, personal expenses incurred through international credit cards, and insurance premiums quoted in foreign currency.

The regime also provided an exception authorizing petroleum and natural gas exploration and exploitation enterprises, as well as those engaged in petroleum services qualified by the Ministry of Mines and Energy as exclusively devoted to rende such services, to use foreign currency within the country to pay any contracts executed between them. The regime also made reference to enterprises devoted to exploration and exploitation of coal, ferro-nickel and uranium.

The regime permitted the payment also in foreign currency for purchases of fuel for vessels and aircrafts used for international travel when these purchases are executed between residents in the country. Similarly, the regime permitted foreign currency to be used for purchases of crude oil and natural gas domestically produced by Empresa Colombiana de Petróleos (ECOPETROL).

Prior to the issuance of Resolution 11, the above-described transactions were the only transactions which could be agreed upon and paid in foreign currency between residents of Colombia. With the issuance of Resolution11, it can be asserted that, at present, any obligation in foreign currency undertaken by residents in Colombia may be paid with foreign currency in Colombia. However, the practical effect of conditions imposed on the manner as to how such payments can and must be effected is that only certain companies or persons, due to their particular activity, may use the foreign currency payment mechanism.

Resolution 11, as well as Regulatory Circular No. 91, also issued by the Central Bank last month (Oct. 16), enables any resident in Colombia to make and receive payments in foreign currency for transactions effected within Colombia, if so agreed, through remittance or receipt of foreign currency in compensation accounts specially established for this purpose.

Accordingly, any resident may receive or cancel transactions in foreign currency corresponding to internal transactions, provided the payment inforeign currency is rendered and received through a compensation account. These compensation accounts, which facilitate the handling of transactions pertaining to the exchange market, are foreign currency accounts opened abroad and registered in the Central Bank.

In addition to the foregoing requirement, Resolution 11 and Circular 91 require compliance with the following conditions:

1. Compensation accounts through which foreign currency is drafted to pay obligations between residents may be exclusively deposited with foreign currency from transactions mandatorily channeled through the exchange market.

Consequently, any foreign currency used to pay transactions between residents must be exclusively derived from transactions from the exchange market. Therefore, taking into consideration the regulations now in effect,only foreign currency received from exports, external indebtedness or foreign investment may enter such accounts and be devoted to pay obligations in foreign currency within the country.

2. The resources of the accounts through which foreign currency derived from the payment of obligations between residents is received may be used only to carry out transactions mandatorily channeled through the exchange market. They are then sold to intermediates of the exchange market or holders of other compensation accounts.

Thus, a person receiving the foreign currency cannot freely dispose of it. That foreign currency may only be used to cover transactions from the exchange market, such as payments due to external indebtedness or imports, and must then be sold to banks or other compensation accounts.

Emilio Wills is a senior partner of Lewin & Wills, Attorneys at Law, in Bogotá, Colombia.