Some things never get old, they just get more complex. That’s what can be said about emerging markets, which have been a challenge to treasurers for years.
“Country exposure is more than the risk of blocked funds, asset expropriation, or war – the political/economic picture is just as important, particularly in the emerging markets,” we wrote in “A Country-Level Decision Matrix” in the September 5, 1994 issue of International Treasurer. “A simple decision matrix, in skilled hands, can help avoid large investment bailouts in emerging markets.”
This is of course still true today. Treasures must be versed in international affairs as much as they are in hedging, pooling, and investing. They know that if they deal with Latin America, they must be their best selves when it comes politics, like, say, in Venezuela, where FX exchange regimes seemingly change with the seasons; or in Brazil and Argentina, where random taxes or a shady relationship with the rule of law can sprout at the first sign of populace unrest. Nor is it easy in places like Ukraine, China, or Russia, where a war or heavy-handed or meddlesome governments can suddenly up-end a company’s well-though out strategy, trap its cash or confiscate the business outright.
“Companies should recognize that the treasury skill-set for the emerging markets must incorporate an understanding of political economics,” we wrote. “In particular, its impact on prices and exchange rates. This skill set is a substantially different one than that of the typical treasurer.”