Outtakes from The NeuGroup’s LatAm Treasury Managers’ Peer Group meeting last week.
Emerging markets offer growth promises that few developed countries can deliver. This continues to put treasury managers responsible for Latin America in some new territory as they support their firms’ regional initiatives. Risk really comes with opportunity now. Further evidence of this was seen in discussions with members of The NeuGroup’s LatAm Treasury Managers’ Peer Group (LATMPG) meeting last week, along with experts from BBVA, the meeting sponsor.
Growth with less risk – with exceptions
Joaquín Vial, BBVA’s Chile-based Chief Economist for Latin America, illustrated that LatAm has “broken with the past” in various ways. There are many signs that the region is inherently much stronger and better able to stand up to global disruption, as evidenced by the region having passed several “stress tests” represented by global financial turbulence and the global recession. In the past, such stresses would have impacted the region much more negatively. Thus, from a risk management standpoint there is more appetite to pursue growth. And growth, there is, with Latin America expected to outpace the US and Europe this year (see chart), in line with global economic “rebalancing.”
The glaring exception to the region’s good news is Venezuela: growth is slow and the environment is unfriendly to business. Business continuity is a worry as well as, of course, the declining value of the Bolívar; a devaluation of one of the official rates took effect in January and Venezuela watchers predict another one before the year is over. Members reported that local-currency is building up and the ways to get cash out are few. The issue of government (and oil company PDVSA) bonds is one way to get dollars but success in the bidding process is notoriously unpredictable.
Current priorities and practices
Among the member priorities discussed at the meeting were a continued drive toward centralizing treasury activities while standardizing processes and communications (using SWIFT, for example, as an enabler) to achieve better controls, cost savings and more value added treasury initiatives, like supply-chain financing. BBVA also shared insight on member priorities such as managing foreign exchange, where a relative decline in volatility makes options more affordable vis-à-vis forwards on certain regional currencies. The current state of cross-border cash pooling was also discussed, but progress is still lagging. Regulatory restrictions on pooling, which are all too pervasive in the LatAm region, are, according to BBVA, not likely to be loosened any time soon. In addition, there are merger integrations going on in several companies, and members shared tips on how to make that process smoother.
The LATMPG’s next meeting will be in June 2011. For more information about the group, contact Anne Friberg.