Decree 444/2020: What is its importance and why has it been subject of discussion?

COVID – 19 led the government to launch Decree 417 of 2020. By this Decree it was declared a State of Social, Economic and Ecological Emergency. Also, Government was empowered for 30 days to issue Legislative Decrees as much as necessary to resolve the declared emergency. One of these was the Decree 444 of 2020 (the "Decree") which created the Emergency Mitigation Fund – FOME (because of its acronym in Spanish).  In the following there are some considerations on the Decree.

1. What is FOME?

FOME is fund of the Ministry of Finance and Public Credit that aims to address: (i) the need for resources for health care, (ii) the adverse effects on productive activity and (iii) the need for the economy to continue providing conditions that keep employment and growth.

2. What is the importance of FOME?

FOME is an important tool to deal with adverse effects by COVID – 19. The resources the FOME will get can be used to:

• Carry out temporary cash flow operations to the financial sector through temporary transfer of securities and term deposits, among others.
• Invest in capital or debt instruments issued by private, public or mixed companies focused in activities of national interest. Those instruments include stocks with special conditions of participation, dividends or repurchase, among others.
• Directly Provide financing to private, public or mixed companies focused in activities of national interest.

3. Can your company finance itself through FOME?

To clear this up it is relevant to distinguish financial sector companies and real sector companies. About the earliest, the Decree does not set enabling criteria to be chosen, so it will be the Ministry of Finance and Public Credit the one who determinate whether the company needs temporary cash flow support because of COVID – 19. If selected, the Ministry of Finance and Public Credit must verify that such supports are aimed to reach the objectives set out by the Decree. Regarding to the latter, the enabling criterion is broad due to the financing is aimed at companies that focused in "national interest" activities. Once again, the Ministry of Finance and Public Credit must take the decision and verify that the allocation of such resources is in accordance with the Decree.

Because of the above it is essential that when companies apply for FOME funding they know how to fit the request with final purposes of the Decree.

4. Why has the Decree been questioned?

The main criticism of the Decree relates to the origin of the FOME´s resources, those that will came from the Savings and Stabilization Fund – FAE (because of its acronym in Spanish) and the Territorial Pension Fund – FONPET (because of its acronym in Spanish). According to critics, with the Decree, pension and territorial authorities’ resources will transfer to private sector regardless whether it is financial or real. Another criticism, from the legal point of view is that, in accordance with article 215 of the Constitution, in a State of Social, Economic and Ecological Emergency, the Government can only use the creation of new taxes as financing mechanisms. They claim this aspect is not observed in the Decree. However, former Minister of Finance – Juan Camilo Restrepo – considered that the indebtedness operation is possible in the current circumstances.  He also says that Government will pay the creditors the debt it takes. The issue will be resolved by Constitutional Court which shall revise that the decree is adapted to the Constitution in accordance with Article 24.

 If you would like to deepen this information or require some advisory on this, please do not hesitate to contact us.