By Anne Friberg
The NeuGroup’s LATMPG tackles treasury projects to optimize their organization for tough times and to take full advantage when things improve.
The outlook for the LatAm regional economy as a whole looked a bit gloomy when The NeuGroup’s LatAm Treasury managers Peer Group (LATMPG) convened for its winter meeting in late January. Despite this, members continued to streamline their processes and organize treasury in ways to balance regional autonomy with central demands for control and efficiency.
Key 2015 projects include LatAm banking optimization, bank account and bank-fee reduction, liquidity and working capital projects, Brazil financing, business expansion and related legal-entity and capitalization structuring, fraud prevention and control enhancements, and FX risk mitigation.
- Weaker FX and more volatility. In the HSBC-sponsored meeting, members were rather bearish—or at best neutral—on the 2015 economic outlook for the LatAm region. This was borne out by an economic and FX review by HSBC, which forecasts weaker LatAm currencies against the USD across the board in 2015 (but is neutral on the Mexican peso), due to the current “USD strength momentum, lower commodity prices, weak regional economic growth, sticky current account deficits and Central Bank tolerance for weaker currencies.”
Real effective exchange rates (REER) are coming closer to their “fair value,” but as trading volumes have fallen there is a liquidity problem and risk for higher volatilities.
- Another “devaluation by another name” in Venezuela. Increasingly under pressure from hyperinflation and sinking oil prices, on January 21 the government hinted of coming changes to the FX regime, which would include a merger of the two SICAD (1 and 2) rates, currently at about 12 and 50 bolivars per USD, respectively, but it is still unclear about where the merged rate will end up.
Also important are likely reclassifications of goods that qualify for the official exchange rate of 6.30, meaning a de facto devaluation for certain goods no longer deemed essential. Recent corporate announcements of FX losses related to changes in the accounting rate used for Venezuelan operations highlight the scale of the problem.
Companies take different approaches and run the gamut from remaining at the official rate or using the official rate for what qualifies, and SICAD 1 for the rest, to transitioning entirely to SICAD 2, even though transacting even at that rate is spotty at best. There is resistance to restating until required but it is a subject of discussion with auditors. Meanwhile, companies slow down business that does not qualify for the official rate, don’t import more until the previous was paid for, or exit altogether (e.g., Clorox).
- Hopes for Argentina after the elections. HSBC expects continued recession and no resolution of the debt “holdouts” in 2015 and consequently no ability to take on more debt and continued restricted access to hard currency. However, Argentina’s October 2015 elections are a source of optimism because, according to HSBC, all the candidates to succeed Cristina Kirchner are considered more business-friendly and reform-minded. The government is likely to try to avoid a devaluation until after the elections.
- Solve my (organization) problem. A member tasked with a treasury reorg in LatAm took the opportunity for peer-to-peer consulting and gained valuable insights into the do’s and don’ts of regional treasury centers. A key step is a clear definition of what is and is not a treasury responsibility, especially if the center is co-located with a shared-service center as well as what are local, regional and central responsibilities and associated reporting lines. Another is the delicate matter of relieving local finance directors of managing bank relationships and accounts.
For information about how to join the LATMPG, contact Ursula Conterno at [email protected].