Inflation

Corporate Treasury & FX in Argentina

Report date: 
7 Nov 2024

Commentary

After Turkey and Egypt, this session discussed Argentina: have the shock devaluation and the rise in interest rates had the desired effect of making the currency more convertible, and starting the economy on the – slow and painful – road to recovery?

As in the other two cases, the response was one of guarded optimism. Business appears to be holding up, and the flow of currency out of the country has been improving. Also, as in the other cases, the exchange rate has stabilised. This does not mean there are no issues and everything is plain sailing: the Argentine consumer is going through a very difficult period. But one – Argentinian – participant said the pain is being accepted, at least for the time being. Inflation has started to come down: to put it in perspective, in September 2024, it had come down to an annualised rate of 209%, against 237% in August (source: BBVA). The central bank’s goal is 18%, and participants are budgeting for something between 30% and 50% next year,

Of course, this is Argentina, so nothing is simple:

  • Foreign currency remittances have improved – for current imports, i.e, ones since December 2023.
  • Many imports from before 2023 still cannot be settled. Various options exist:
    • BOPREAL bonds: these are three series of US dollar denominated bonds issued by the Argentine government, which will mature in October 2027 (series 1), June 2025 (series 2) and May 2026 (series 3). At maturity, the dollars can be remitted to settle import invoices, or, for series 2 and 3, dividends. These bonds can be sold in the secondary market, for a haircut which is usually about 30%. There has been talk of a new series specifically for old invoices.
    • Blue chip swaps: these involve using pesos to buy USD bonds, which can then be sold in dollars. The haircut on selling these varies: it has been as high as.....
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Topics covered in this report: 
FX, Hedging FX, Trapped cash, Cash Repatriation, Investments, Blue chip swap, Collections - domestic, Banking, Inflation
Service providers discussed in this report: 
JP Morgan, BBVA, Citi, Grupo Financero Galicia

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FX & Treasury in Turkey

Report date: 
29 Nov 2022

Commentary

Europe meets Asia in Istanbul – and Turkey is very much at the crossroads when it comes to a lot of the cultural, geopolitical and even military issues which are currently roiling the world. Despite all the turmoil, Turkey remains a relatively open and thriving economy, and it is a significant market in its own right for several participants.

Turkey has been struggling for several years with a high inflation rate, and this is causing issues for all the participants. Despite this, business seems to continue and be reasonably healthy for all of them. The high inflation rate causes a series of problems, but all participants are able to fund their businesses and repatriate cash. The challenges:

  • High interest rates, though these have now fallen to a little over 10%
  • Inflation officially at 85% - but unofficial estimates are up to 150%
  • Scarcity of bank funding: given the above, it is not surprising that banks are not willing to lend – especially as the central bank now requires a deposit of 30% of the amount lent, at 0% for the first 30 days.
  • Some participants have moved to cross-border intercompany funding, onshore intercompany loans between entities, and equity, as required.
  • One participant is looking at cross border intercompany funding from a subsidiary in a third country which has excess cash. The documentation is proving very challenging.
  • Accounting: officially, Turkey has hyperinflation (over 100% in the last three years), which means the HQ’s currency has to be used as the functional currency for accounting, under both IFRS and US GAAP.
  • Hedging:
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Topics covered in this report: 
Inflation, Pricing, Hedging FX, Funding, Bank Relationships, Payments - cross border, Collections - domestic
Service providers discussed in this report: 
BNPP, TEB, Garanti BBVA, HSBC, Citi

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Argentina Treasury & FX update

Report date: 
31 Jan 2022

Commentary

The Argentina saga continues, though there seems to be some evidence of stabilisation.

Inflation continues at about 50% per annum.

It seems to be reasonably possible to get hard currency to pay for imports from third parties, as long as the import has been properly registered and approved, is from a third party, and is more recent than March 2021.

On the other hand, it is very difficult to get approval for intercompany remittances, even if these are for goods. Old outstanding balances are basically frozen, with very little progress on remitting them out.

Currency hedging is difficult to obtain, and prohibitively expensive. Most participants have given up trying to hedge peso/dollar exposures.

Most people are seeing significant build ups of peso cash. It is difficult to earn a decent return on this cash – maximum interest paid tends to be between 20% and 30%, i.e., a net loss of value of 20% after inflation. Some foreign banks, such as Citi, will not accept peso deposits.

This situation can lead to significant P&L exposure, as companies record FX losses on their dollar denominated liabilities – especially the intercompany ones.

Most participants continue to do business in Argentina, because it is viewed as a strategic market. Also, many have to support international customers, who do business there. 

As always, our members are adopting a series of interesting and innovative measures to cope with this situation. There is a lot of detail below – the quick summary is:...please sign in to continue reading

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Topics covered in this report: 
Inflation, Payments - cross border, Payments - intercompany, Cash - deposits, Hedging FX, Bonds - US dollar linked, Cash Repatriation, Contado con Liqui, Blue chip swap, Invoicing
Service providers discussed in this report: 
Banco de la Nacion Argentina, Banco Galicia, BBVA, BNP Paribas, Citi, HSBC, Santander, ICBC

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