Argentina

Corporate Treasury Challenges in Argentina

Report date: 
6 Nov 2023

Every call on Argentina comes down to the same question: when are things going to improve? Sadly, the answer is usually the same: no improvement in sight, so companies are still dealing with the toxic mixture of high inflation, high currency depreciation, a rigid tax regime and severe exchange controls.

This call took place against the backdrop of the first round of the presidential election, with a real concern that one of the candidates would pursue some unorthodox policies, including fully dollarising the economy. The more conventional candidate won the first round, but the future remains uncertain. 

So this call was no exception: not only is there no improvement in sight, but the operating environment continues to get more difficult:

  • Even companies in high priority industries, such as health care, are finding it increasingly difficult to get foreign currency to settle import bills.
  • The 7.5% import tax has

 

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Topics covered in this report: 
FX, Hedging FX, Cash Repatriation, Trapped cash, Blue chip swap, Funding

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Approaches to Investing Trapped Cash

Report date: 
2 May 2023

Commentary

All international companies put a lot of effort into avoiding having cash trapped in emerging countries. But, despite our best efforts, there are still situations where cash accumulates in places from which it can’t be repatriated. This quickly becomes a lose/lose situation for the MNC: often the countries involved have high rates of inflation, and usually provide low rates of return on bank deposits – or even no return at all. So the cash loses its economic value, while counterparty risk quickly becomes an issue, over and above the sovereign risk concerns. Further, depending on the company’s accounting policies, exchange losses can negatively impact reported profits, as the local currency depreciates.

The purpose of this call was to discuss how to make the best of this bad situation – to look for ways of managing the issue.

  • Generally, there was consensus that standard risk management approaches continue to apply. No-one is prepared to ignore their usual principles.
  • However, there was consensus that some flexibility may be appropriate. The question is – how much?
  • The first problem is bank deposits: all participants preferred to continue to use international banks, even if they often provide lower rates than local ones. The counterparty risk issues with local banks were not viewed as sufficient to offset any increased return.
  • Most participants were in favour of putting pressure on the international banks to increase rates: in Latin America,  the European banks were generally viewed as being more responsive than their American counterparts, with Santander being used frequently: BBVA was
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Topics covered in this report: 
Trapped cash
Service providers discussed in this report: 
BBVA, Santander

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