Treasury & FX in Argentina

Sometimes, situations arise where the treasurer just can’t find a solution, and has to recommend that the business find a “survival mode”, where the goal is simply to minimise losses and disruption until the situation improves. Unfortunately, with the re-imposition of exchange controls, Argentina looks like it is in that situation – and the consensus on the call was that things will get worse before they get better. The main comments:

The new regime is not clear, as many details, such as potential exemptions, are still being worked out, and very few requests for the purchase of foreign currency are being approved.

In many ways, the new rules are stricter than the old ones: for example, in the past, exporters could keep their USD collections to pay for imports. This is no longer the case.

Different participants have different issues – but they all have a problem. Those who have surplus cash are facing significant negative real returns – they struggle to get their cash out, and they can only get 25% to 30% interest on deposits, but inflation is above 40%. Those with funding requirements are looking at paying 80% to 90% on their borrowings. The solutions often involve an element of risk, such as placing longer term deposits with local banks who may not meet the criteria to be considered as viable counterparties.

Solutions being offered to the FX problem similarly give rise to concerns: these include buying shares or bonds in Buenos Aires and selling ADRs in the US.

Bottom line: if you are convinced there is a future, you have to hunker down and wait for this latest storm to pass.