denotes premium content | Dec 5 2008 Trade & Forfaiting Review magazine archive
Volume 7 Issue 7
Editor's foreword
Just before this issue went to press, the powers-that-be at the World Bank and International Monetary Fund (IMF) concluded their annual spring meetings by sending a stern message to Latin America to get its act together once and for all. The prescription included everything from tax and energy reforms to that old favourite, fiscal prudence.
The fear seemed to be that recovery would lead to complacency, and thus offer the chance for another crisis. It is possible that Latin American leaders might not feel the urgency they did a year or two ago. The IMF predicts that regional growth will be 3.9% this year, the same level as in 2000 and higher than the average growth rate in the 1980s and 1990s. Argentina continues its recovery from its 2002 crash and is expected to grow 5.5%. “In many ways, the regional outlook for 2004 is perhaps more favourable than at any time since the 1990s,” said Anoop Singh, who heads the Latin American and Caribbean department at the IMF.
Inflation is in check for the moment, external accounts are looking good and foreign capital is returning. The inflow of private capital to Latin America could total $43bn this year, up from a low of $19bn in 2002. Add to this soaring commodity prices, an increase in exports and low international interest rates. Meanwhile, the average spread on Latin American bonds have halved in the year to January, to under 5%, and the region’s stock markets are booming.
But David de Ferranti, the top Latin American official for the World Bank, was quick to burst the bubble. “Today’s environment won't necessarily continue forever,” he warned. “We are putting a lot of emphasis on the importance now for countries in the region to use these good years to strengthen themselves in the event that ... subsequent years may not be so easygoing.”
Not surprisingly, Argentina was the subject of greatest concern. Finance ministers from the Group of Seven said Argentina had made progress but “further progress is required”. US Treasury Secretary John Snow urged the country to move ahead on restructuring its debt with bondholders, and the IMF urged it to raise its primary fiscal surplus and deal with its energy crisis.
Perhaps Latin America’s capital markets best illustrate the region’s tenuous recovery. Issuance levels in 2003 wildly surpassed 2002 in dollar terms, but Fitch Ratings downgraded 14 different issuers, of which six defaulted (four in Argentina). Latin America, is seems, is on its way back to stability, but the road is long and treacherous – and the possibility of sudden U-turns cannot be counted out.
Courtney Fingar is editor of TFR.
Features
Sunny days ahead
Abundant harvests, growing demand and skyward prices are bringing smiles indeed to the faces of grain traders the world over, while banks look to capitalise on developments in markets such as Ukraine, Kazakhstan and, most of all, China. They have plenty of time as the happy days look set to continue well beyond this season. Erika Morphy reports.
Learning some new moves
As Latin America dances its way back into the hearts of trade financiers, the region’s corporates and banks are tapping the local and international capital markets in some unexpected new ways. And as other forms of finance become more expensive, corporates are learning to love securitisation and other structured finance offerings. Erika Morphy reports.
Mexico’s capital markets: A couple of firsts
ECAs in Latin America: Heading south
Where cash and trade converge
More corporate treasurers are turning to web-based solutions such as electronic payables discounting. JPMorgan’s Craig Weeks, senior vice president and head of Western Hemisphere trade-finance sales and Latin American cash-management sales, and Alexander Lara, vice president and Latin America north sales head, explain how it can be used to optimise working capital and why it is particularly well suited to the Latin American market.
Not all that it could be
Despite its wealth of exportable commodities that would seem to be calling out for structured trade and commodity finance, few Latin American markets see the transaction volumes and structures that one might expect. Geoffrey Wynne, a partner and head of trade and export finance at Denton Wilde Sapte in London, analyses why this is and why the situation might be changing for the better.
Taking control of commodities
As Argentina and Brazil recover, large exporters are for the most part finding the commodity financing they need, but smaller ones are still struggling. Christian Joerg, vice president and head of collateral management at SGS Société Générale de Surveillance in Geneva, thinks collateral management could help. Here, he explains the important role of collateral management in structured commodity finance and outlines some other risk-management solutions that could be utilised in Argentina and Brazil.
Why discrepancies?
There is no shortage of commentary and information on what makes trade documents discrepant and how common discrepancies are. But few have bothered to delve into exactly why discrepancies occur. Ravi Mehta, a certified trade specialist and independent export-finance consultant, argues that most result from weaknesses in both business management and LC management. Here, he details the reasons that exporters make mistakes on documents and offers some remedies for the most common causes of discrepancies.
Regulars
Market view: Juan Carlos Uribe
Letter from Hong Kong: David Sullivan
Company profile: Turning a corner
With a new board, new management and new structure, WestLB says it is heading towards 2005 and the loss of its state guarantee with optimism rather than fear or dread. Nowhere is this more evident than in the bank’s commodities team, which has welcomed some new members recently, including Paul Starling and David Wightman. Courtney Fingar speaks with the pair as well as global head of commodity finance Armin Eckermann about what’s ahead.
Personal profile: New man at Deutsche Bank’s STEF helm
Last month we profiled Hans Herold on the eve of his retirement from Deutsche Bank, where he was global head of structured trade and export finance. Now, Courtney Fingar speaks with his successor Klaus R. Michalak to find out about his immediate and long-term plans, and how he will carry on with the group’s recent re-organisation and build on the successes of recent years.
Arrangers of trade-finance loans by region
The below amounts are calculated on an apportionment basis and deals are eligible for league-table credit/inclusion when a loan agreement has been signed and fees (where applicable) are paid. For purposes of clarification, Eastern European borrowers include Russia. Amounts in US dollars.
Emerging-market debt pricing
Omni Whittington Commentary, May 2004
Country-risk appetite
The analysis from Standard Bank London:
