Treasury & FX in Argentina

Chairman’s commentary

Argentina is the country in South America which has come the closest to copying Venezuela’s example. Until the last elections, it was going down a path of economic isolationism: the government’s objective was to be self sufficient in everything. This enabled them to pursue policies which destroyed economic competitiveness – but that is not a problem if you do not trade with the outside world. Key amongst these policies was, as in Venezuela, distribution of wealth to the poorer citizens. In a democracy where a high percentage of the citizens are poor – despite the huge natural resources both countries possess – this policy is likely to win elections, irrespective of the drawbacks which are obvious to those who are better off.

Since the defeat of Mrs. Kirchner in the last elections, the country has been pursuing a – very difficult and painful – policy of “normalisation”. The upcoming elections represent a major test of the direction the country will take.

This situation is more acute in Venezuela and Argentina, but it is, in many respects, the problem of the whole continent. It is the reason why companies need to be prepared to face challenges to the way they do business and manage their finances in Latin America.

Political uncertainty aside, the treasury landscape in Argentina today is challenging:

• High inflation rate – between 40% and 100%. Some participants have been affected by the requirement to adopt accounting for a hyperinflationary environment
• Correspondingly high interest rates in pesos. These make borrowing difficult – and expensive.
• Difficulty hedging currency: forward rates reflect the interest rates. Most companies adopt a form of natural hedging, balancing imports and exports.
• A fragmented banking environment: most international banks have scaled back their presence
• Logistics challenges: Argentina is a large country, but the majority of the population live in Buenos Aires. Banking services in Patagonia, for example, are difficult to obtain.

The discussion reflected a truly impressive range of different, and highly inventive, solutions. Many of these solutions involve departures from normal corporate treasury policies. They are usually closely tied to the specific nature of the business – this is an environment where a treasurer needs to be flexible, but, more than ever, close to the business and a partner to the business.

 We have reported the discussion more or less as it took place, so people can see the breadth of the solutions.

 Thank you to everyone for sharing these fascinating experiences.

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