denotes premium content | Jan 9 2009 Trade & Forfaiting Review magazine archive
Volume 6 Issue 9
Editor’s foreword
With structured trade finance’s Russian heyday seemingly drawing to a close, many trade financiers are casting a cautious yet interested eye towards Latin America – even those who might have thought “never again” after the most recent Argentine fiasco. For all its warts, the crisis-prone region is indeed tempting and, due to Latin America’s short economic cycle, investors typically forgive and forget its follies a bit easier than those of, say, Asia. The problem is, at the first hint of trouble, they tend to rush out again as quickly as they rushed in.
Trade finance is crucial to Latin America’s economic stability. Overall, appetite for traditional, short-term trade finance and structured, long-term, trade-related, capital-markets issues has survived the various economic crises that have plagued the region over the past few decades. Yet while trade with Latin America has more than doubled since 1990, financing for that trade has declined steadily. This discrepancy was highlighted last year when market uncertainty over Brazilian presidential elections resulted in a sudden shortfall in much-needed trade finance and traders of even the highest quality were slapped with shortened tenors and widened spreads.
Argentina’s woes were largely to blame for skittishness in Brazil. It wasn’t just the largest-ever sovereign default that put trade financiers off; it was the government’s unwise decision to “pesify” domestic accounts and the corresponding deterioration of the banking system. To ward off a deepening crisis, Argentina’s newly elected president, Nestor Kirchner, must get the fundamentals right. First off, he must strike a rescheduling deal with the International Monetary Fund regarding Argentina’s US$2.7bn multilateral debt if international lenders are going to be coaxed back in.
If Kirchner succeeds, perhaps Argentina could go the way of Brazil, where renewed political confidence and marginal economic recovery have translated into greater liquidity for trade-finance business from banks and forfaiters, and where margins have been pushed back down to pre-2002 levels. Of course, the shrinking margins largely reflect increased appetite for Brazilian assets that can’t help but look attractive when compared to those in struggling neighbours like Argentina, Uruguay and Colombia, as well as a more cautious approach to foreign borrowing by many Brazilian borrowers.
Unlike Brazil, where demand for credit remains patchy, Argentine exporters especially are in dire need, and want, of trade finance. As such, trade financiers who are prepared to dig in and show commitment to Latin America, for better or worse, have a role to play in the saving of Argentina.
Courtney Fingar is editor of Trade & Forfaiting Review.
Features
Is forfaiting dead?
A provocative suggestion? Margrith Lütschg-Emmenegger says no – just a wake-up call. She argues that the forfaiting industry can survive, provided it’s willing to modernise and reinvent itself.
Asia structured commodity finance: All Sarsed out?
As the initial panic over Sars subsides, businesses in Asia will now begin counting the costs. For commodity brokers and trade financiers, it is difficult to quantify. Christian Stauffer provides a front-line account of the various ways – both big and small – the disease disrupted structured commodity finance deals in the region.
Another false dawn?
A new year, a new president… Argentina has operated something of a revolving door since 2000, with few recent incumbents likely to earn a lasting place in history. Can Nestor Kirchner break this disappointing pattern – or even serve out his full term? Trevor Utting speculates.
Crisis, what crisis?
No other part of the world seems to suffer from crisis contagion as severely as Latin America. But banks need not shy away from this volatile region, argues Ignacio Ramiro, if they maintain a consistent approach to trade finance, as well as an eye for innovation.
Sowing the seeds of growth
As other sectors wilt around them, Argentina’s grain, oilseed and by-products industries are flourishing, and yielding bountiful export-finance opportunities. Ricardo Passero provides an overview.
When the pendulum swings
Difficult market conditions in Latin America have caused a pronounced slowdown in forfaiting activity and a corresponding reduction in market participants, leaving importers and exporters without adequate financing as trade volumes continue to increase. Until the pendulum swings back in favour of forfaiters, the key to survival is specialisation, suggest Jose E. Gonzales and Jaime Medina.
A fine line – and getting finer
Driven by the changing needs and demands of corporates, banks are blurring the lines between the trade-finance and cash-management solutions they offer – to the mutual benefit of themselves and their clients. Craig Weeks explains the cash-trade convergence and its implications for Latin America.
What’s in store?
Field warehouse receipts are increasingly being utilised as credit instruments in developing countries. This form of financing has many advantages, but only if used correctly, as Andre Soumah explains.
London legal highlights
Three recent UK cases, two in the Court of Appeal and one in the House of Lords, considered various issues in relation to bills of lading and letters of credit. David Lacey and David Leggott highlight aspects of these cases that are of particular relevance to trade finance.
The ins and outs of outsourcing
Product and operating managers are challenged daily to prove and improve the value of providing letter-of-credit processing services for their banks. Gerard Sheridan identifies the primary profit and cost drivers and looks at a typical trade outsourcing model. He also explains how establishing a strategic trade partnership can be a “win-win” situation for both the insourcing and outsourcing bank.
Regulars
Company profile: Dark-horse contender
Lloyds TSB has an enviable customer base and an unmistakable brand image, but it has rarely been competitive in trade finance. Now, however, it has secured a seasoned leader in Peter Sargent and is ready to finally throw its hat in the ring.
Personal profile: Enjoying Citi life
More than two decades after starting his trade-finance career in Latin America, Valentino Gallo is managing structured trade finance for one of the world’s largest banks. He discusses with Courtney Fingar his early years at Fiat, his move to Citibank and his outlook for key emerging markets.
LTP Trade Finance Index: Steep monthly rise
The LTP Trade Finance Index™ rose 0.49% in May. This return is the largest monthly rise in 2003 and brings the total return for the year to date to 1.73%. This compares to the same period in 2002, when the index rose 1.93% – in both cases, demonstrating the consistent positive returns that can be obtained from a portfolio of trade-finance assets.
Indicative forfaiting rates
The analysis from Standard Bank London:
