The recent euro crisis was a good test for Latin America. Whereas previous turmoil had taken the region by surprise, it was a little more prepared for the latest storm. What this demonstrates is that the fiscal policies that many Latin American countries have implemented over the last decade have provided them with the tools to better withstand macroeconomic shocks.

Published: 3^rd September 2012

Biography

What macro trends are you seeing in the Latin American market today?

The recent euro crisis was a good test for Latin America. Whereas previous turmoil had taken the region by surprise, it was a little more prepared for the latest storm. What this demonstrates is that the fiscal policies that many Latin American countries have implemented over the last decade have provided them with the tools to better withstand macroeconomic shocks.

A good example of this is that despite the Eurozone troubles, the slowdown of growth in Asia and the problems that the US economy is experiencing, Latin America is still forging ahead. This continued growth in the region has been buoyed by the fact that Latin America’s trade base is not heavily orientated to the euro markets. Countries in Latin America still have a great deal of opportunity stretching out in front of them. Take Brazil for example – the authorities have been doing an excellent job of managing and cultivating the nation’s import/export business with Asia. And countries such as Chile and Columbia have experienced incredible growth over the past two years.

Of course, there are some countries where challenges remain. Oil production and conflict with neighbouring countries has consistently placed Venezuela in the spotlight. Argentina, on the other hand, has institutional difficulties. The country is going through a period of economic growth as it is very commodity-orientated. But the environment for doing business there is highly restrictive, especially where foreign exchange controls are concerned. Nevertheless, we are still seeing companies investing in Argentina – some are external to the region, others are based in Latin America. Many of these companies are hoping to take advantage of the rebound that the country is anticipating in the near future.

How has Bank of America Merrill Lynch’s presence in Latin America developed?

For us, Latin America is a very important region. The bank has been investing in Latin America over the last decade, with a significant ramp-up in investment over the last 18-24 months. In 2011, we converted our investment banking license in Brazil into a commercial license. Brazil is one of the fastest growing economies in the world and with the new license in place, we have built a complete suite of products in the country.

Elsewhere, we have had a presence in Mexico for more than 50 years. The joining of Merrill Lynch and Bank of America has really assisted in making Mexico a linchpin of our regional strategy, together with Brazil. We have additional operations in Argentina and Chile, as well as representative offices in Peru and Colombia. The bank runs a shared service centre out of Costa Rica, which is strategically placed to help cover both US and Latin American clients.

Which corporate treasury solutions are particularly in demand in Latin America?

There are three major demands coming from our corporate clients today. The first is for trade solutions and supply chain finance. These help clients control their trade business in the region and accelerate some cash flows where necessary. We have a very robust pipeline on trade, both in the traditional space and in the export credit agency (ECA) financing and Exim bank space.

The second requirement we are seeing is for best-in-class liquidity management, within and outside of the region. With all the global challenges that corporates are encountering today, they want good quality investments and advice on how to better manage their US dollar liquidity. After all, the Latin American markets – being commodity-driven economies – are closely tied to the dollar. Companies are permitted to keep US dollar accounts abroad, making the dollar even more popular in the region. In the US, we recently launched new capabilities in terms of sweeping and zero balance account (ZBA) structures in order to help companies with their liquidity management challenges – and clients based in Latin America can absolutely leverage those.

Mobile technology is the third trend I would like to highlight. As opposed to being a ‘nice to have’ feature, mobile functionality is definitely something companies are looking for in Latin America. Given that there are four to five times more mobile handsets in the region than fixed telephone lines, the region is ready for mobile treasury solutions. Bank of America Merrill Lynch is investing significantly in mobile technology and we have successfully implemented solutions developed in the US market to Latin America.

Is centralisation a key theme for corporates operating in the region?

The largest corporations in the region are embracing best practices from the US and Europe. That might be reflected in their decision to strategically outsource certain tasks, for example their treasury structure. But increasingly, corporates are realising that the optimum model in Latin America is to run a ‘decentralised-centralised’ operation. Essentially, companies know that they need to give a little bit more control to their subsidiaries in the region, but at the same time because of regulation and compliance, companies need to maintain a degree of control centrally. Companies have been able to make this compromise through technology.

Another interesting trend we are seeing in Latin America is related to large American corporations moving into the region. We have seen their suppliers following their large buyers into the region to become part of their local supply chain. Rather than letting go of the dealings they have with their buyer specific to that new market, the supplier takes a leap of faith and moves into that new market to locally produce the parts their buyer wants. It’s a very strategic move and as a bank we are working to support those suppliers as well as the large buyers.

Finally, what do you see as the main threat to Latin America today?

While the trouble in the Eurozone is pressing at a global level, I see the slowdown of growth in Asia as the main threat to Latin America. That said, the shadow of that slowdown is dissipating slightly with the recent announcement in China of expansion into other regions to keep their incredible GDP growth going.

Nevertheless, Brazil will continue to be an engine of growth for Latin America with Mexico a very close second. Colombia, Chile and Peru are also leading lights: they are generating the extra synergies that are needed to push Latin America even further onto the international stage. These countries have really been investing in their infrastructure and industry-related projects over the last fifteen years. They are now reaping the rewards and moving themselves ahead of the curve.