FX

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.
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Commentary

With recent events, there has been less media focus on China. The news related to China has been about trade tensions with the US, the extent of China’s relationship with Russia, and the issues related to the real estate sector. Even COVID has tended to fade into the background, with the economic impact of the extended lockdowns and the disappointing pace of the recovery.

The purpose of this call was to find out how our members are finding the business and regulatory environment in China, and the extent to which their operations and treasury management are being impacted.

The overwhelming response was that it is very much business as usual – both in the good and bad respects. Participants on the call come from a variety of industries: while some, especially those facing the consumer, are seeing a significant slowdown, some continue to see growth. Everyone saw current difficulties as being transient, and nobody was looking to reduce their presence. The call quickly got into the operational challenges China presents – it was the familiar scenario of regulations which are always changing, are often not totally clear, and surprises.

• Chinese banks. One participant reported that one local bank, ICBC, had proved to be very proactive in helping their company automate several processes, using new technology. This is a big step forward, as Chinese banks have traditionally preferred to avoid this kind of engagement with foreign companies. 
• At the same time, there was a feeling that, as their traditional real estate lending activities have come under pressure, several Chinese banks are now more willing to lend to foreign companies.
• At the same time, most participants prefer to limit their relationships to the core foreign banks: this is becoming easier, as foreign banks are now able to provide services, such as the basic account, which used to be reserved to local banks. Several participants are reducing their banking relationships, usually focusing on core – international – banks.
• Also, participants reported that FX payments are being approved more quickly, and regulations seem to be easing – there was a lot of discussion about the requirement to bring the balance

Commentary

In our last call on Colombia and Peru in October 2021[https://www.complexcountries.com/treasury-fx-in-colombia-peru], there were concerns about political uncertainty. Since then, the president of Peru has been impeached and a left wing former guerrilla elected president of Colombia has been beset by scandals. So how has this impacted the companies operating in the countries?

In short, not a great deal. Currency volatility continues to be a challenge and reduced foreign investment has hampered growth. But in terms of politics the markets are relatively sanguine as the respective governments stumble along without enough power to make radical changes and the long run potential remains.

From a Latin American perspective both countries are relatively easy to operate in for treasury, with local teams coping well with the challenges.  

Colombia:

• Most companies repatriate cash via dividends and intercompany loans. The process involves a lot of admin, but it works.
• Funding is relatively easy but also entails a lot of bureaucracy and it is essential to get communications with DIAN (the tax & customs agency) accurate.
• Some companies avoid the transaction tax (‘cuatro por mil’) by parking cash in fiduciary accounts for 24 hours. It saves money but, again a lot of form filing.
• The currency volatility also caused one participant to have their local credit dramatically reduced
• Citi is the