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Commentary

Amongst treasurers, Latin America does not have a great reputation. Even if we have come a long way from the past of military dictatorships and very difficult regulations, it remains more complicated than many other regions. Peru, Colombia and Chile all have seen significant turmoil in the recent past.

So – where do we stand today? It says a lot that, on this call, the peers’ main concern was about whether to use local or foreign banks, and whether the FX rates for foreign remittances were better onshore or offshore. 

Of course, there are causes for concern, especially about the direction of the economy in each country. Peers gave different views on this, especially in Colombia. But, generally, the problems companies face are manageable:

• The biggest complaint was about the financial transaction tax in Colombia: as its name suggests, the “cuatro por mil” is a 0.4% tax on every money transfer above a monthly threshold. This can represent a significant cost when cash is being moved between banks, even within the same entity. There is a workaround which involves the use of a fiduciary: this does not work for transfers with third parties, and it blocks the cash for 24 hours. Another alternative for cross border international payments between subsidiaries is to settle them offshore.
• All peers are working to improve working capital. Factoring and supplier finance solutions are available, but factoring is felt to be expensive. 
• Other avenues for improving working capital include trying to use more modern payment methods. There was a feeling that these countries are maybe less...

Commentary

Brazil is a success story. It often does not receive the credit it deserves, because it remains a difficult and complicated place to do business. But all the treasurers involved in this discussion have large and profitable businesses there – there was a time when most people lost money. On the political front, Brazil has recently seen both left and right wing governments, but both have respected election results, and the economy has continued to progress through it all.

Of course, it is not all rosy: though many rules and administrative processes have been relaxed, much complexity remains. In the past, a local treasury presence was required: it is now possible to run the country from offshore, though a specialist team may still be necessary.

The challenges discussed in the call:

• Boletos: many customers in Brazil pay using boletos. These are a form of bill of exchange, where a document is prepared, usually by the seller, with all the payment information, including a barcode. This can then be presented by the payer in any location, and payment will be received by the seller in their bank account. This is a good system, but participants complained vehemently about the cost, and banks’ unwillingness to reduce the fees. Other issues:
• Boletos are often cancelled when they are not paid on time and a new one is issued, instead of charging the intended late payment fees. 
• Payment of a single invoice is often spread over several boletos, each with different due dates: this causes the very accounts receivable reconciliation issues the system is designed to avoid.
• Boletos can be issued electronically (e-boletos): these reduce the amount of paper but, disappointingly, the fee reduction is not significant.
• Some participants regularly do RFPs for this business, and frequently change banks. But fees remain high, and banks are often unwilling to continue.
• Frequent changes in the process and rules present challenges in keeping the systems updated – this often results in manual processing.
• One participant noted an improvement in service and processing efficiency.
• PIX: the good news is that a form of on-line payment, PIX, is available and becoming increasingly popular, even for B2B transactions – and the fees are paid by the payor. The bad news is that the fees are also high, though not as high as for boletos. 
• Tax payments: there is a requirement to maintain accounts with many local banks to make payments to tax authorities around the country. One participant is very happy with a JPMorgan tool to manage this and eliminate the related local accounts. Another used this tool in the past, but is now achieving the same result with Citi.
• FX documentation

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Commentary

Brazil never disappoints: the term “complex country” applies to it in nearly every respect.

Apart from the usual updates to the constantly changing environment, the purpose of this call was to see whether there is any improvement in the economic situation (inflation has recently been even higher than usual), and whether there is any visible impact from  the recent political turmoil and change of government.

The bottom line is that it is very much business as usual. The Brazilian economy continues to perform well, even if inflation persists and interest rates remain high. However, inflation and interest rates do seem to be levelling off, and the BRL has been relatively stable recently. The country remains a main engine of growth for the LATAM region, and most participants have significant operations there – though everyone finds it to be a tough and highly competitive market.

Brazil is continuing its efforts to simplify its complex tax laws and currency regulations: most people are managing to do cross border intercompany loans, both in and out, and the taxes are being reduced or eliminated. In the meantime, of course, there are still some significant taxes on some types of transactions, and daily operations remain burdensome and complex.

The country is also making big strides in electronic payments: boletos are widely used, and come participants are beginning to use PIX, at least for receipts. Electronic boletos are increasingly supported by even the international banks.

Banking in Brazil is very competitive: many participants use Citi, with varying levels of satisfaction, while JPMorgan are viewed as being aggressive and increasingly