According to Communiqué No. 21,124, of Mary 31, 2011, issued by the Department of International Matters of the Central Bank of Brazil (Banco Central do Brasil - Bacen), Bacen signed a bilateral agreement with the Central Bank of Argentina (Banco Central de la Republica Argentina) for the ongoing operations of international trade in services which are necessary in connection with the performance of civil engineering works for the construction of infrastructure and industrial plants, including product repairs within the warranty period, under the Agreement on Reciprocal Payments and Credits (Convênio de Pagamentos e Créditos Recíprocos - CCR) of the Latin American Integration Association - ALADI.

To better understand the scope of this bilateral agreement, it is important to give a brief explanation about the CCR. The CCR was signed on August 25, 1982 by twelve participants, which are the central banks of the member countries of ALADI, namely Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, Venezuela and Dominican Republic. The CCR was originally aimed to facilitate trade in the region and reduce international transfer of funds in a scenario of foreign exchange´s shortage that marked the 80s.

The CCR mechanism is in practice a clearing of payments system made operational by the participating central banks, through quarterly set-off, which considers the periods of January/April, May/August and September/December. The set-off in U.S. dollars is carried in the week following the close of each quarter. Based on a deferred settlement system net (sistema de liquidação diferida pelo líquido - LDL), are routed and cleared for international payments between these central banks, so that soon after the end of each clearing period, the outstanding global balance must be transferred to or received by the central bank of one country to the central bank of the other country, depending on whether there is a deficit or surplus in the second.

One of the main features is that the CCR offers to the participant central banks reciprocal guarantees of convertibility (immediate conversion to U.S. dollars of all payments made by their institutions in local currency), transferability (remittance of U.S. dollars to cover payments made their institutions) and reimbursement (irrevocable acceptance of debts which are allocated as a result from operations conducted under the CCR).

If a country fails to honor any payment at the quarterly multilateral netting, the CCR requires the activation of the Automatic Payment Program (Programa Automático de Pagamento - PPA). The PPA is a mechanism that establishes a division of the amount payable in four monthly installments. The CCR structure leads central banks to take certain external and internal risks which normally would not be assumed by the monetary authority, such as country risk and banking risk. Each central bank seeks to adopt measures to minimize those risks.

This bilateral agreement entered into between Bacen and the Central Bank of Argentina is limited only to international trade operations whose goods and services are eligible to be routed by the CCR and expressly excludes payments from pure financial transactions. The term "pure financial transaction" as used herein means any transaction involving a transfer of funds that is not related to an international trade operation (export or import transaction) made between individuals or companies resident, domiciled or headquartered in Brazil and Argentina.

These operations must rely on funding from an official export credit agency or an official bank of the exporting country that fulfills similar functions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.