Cash and Treasury Management Solutions in Latin America. (Special Advertising Feature).

For cash managers and corporate treasurers, Latin America's volatile economic and financial climate presents both challenges and opportunities. Classic approaches to risk management have returned to favor, and the need for careful implementation of investment strategies has never been greater.

At the same time, new Internet-based solutions allow financial managers to respond more quickly to changing situations. Latin Trade magazine discussed the latest cash and treasury solutions with several leading experts in advance of the seventh annual Eurofinance Conference on Treasury Management in Latin America in Miami on April 16-18, 2002. Here are their comments.

An Overview

Ricor F. da Silveira

Head of Corporate Cash Management

Latin America, ABN-AMRO Bank N. V.

How does the current economic climate in Latin America affect the activities of corporate treasurers?

The current economic climate of limited GDP growth throughout the region and economic and political uncertainty in Argentina, Venezuela and Colombia continue to affect the corporate treasurer, most significantly in the area of risk management. This manifests itself in various areas:

* Cash management: As a result, treasurers are continuing to focus on bank rationalization in their markets. The aim is to reduce the number of banks they work with, as well as the number of accounts they hold in local currency. This consolidates their local currency positions on-shore, which then can be more effectively managed. Alternatively, there is greater emphasis on collecting funds in U.S. dollars as efficiently as possible. To this end, companies continue to explore dollar concentration and pooling opportunities offshore.

* Bank relationships: Treasurers are more conscious of the composition of their bank portfolio. Building on existing relationships with highly rated banks by Moody's and S&P, they focus on working with the largest local institutions, as well as a select group of international network banks with proven track records and sufficient depth of product offering to support their needs.

What steps should I take to maximize liquidity?

Several steps can be considered to maximize liquidity:

* Further shortening of the collection cycle. Most important, lead time is the internal processing of purchase orders and invoices, providing the biggest opportunity for efficiency improvement. Furthermore, treasurers should assure themselves that the best possible value is given by the various banks on the collection instruments used.

* Improvement of collection reconciliation. Being able to receive beneficiary advice through your banks allows for better forecasting of the cash position available for investment, or alternatively for funding.

* Continue to explore opportunities to concentrate, or pool, cash balances. Pooled accounts provide for the biggest liquidity maximization possible. For further investment or funding maximization, opportunities in off-shore locations could be considered, such as Curacao and Cayman Islands.

What types of technology should organizations be considering and why?

First, it is important to understand that it is not technology which is driving business needs, but the other way around. It would be unwise for any organization to discard its current technology. Rather, firms should focus on leveraging their current technology with new tools through a process of systematic integration in synchronization with their business processes. This would unlock embedded values which are necessary for enhancing an organization's revenue objectives. In short, technology that extends the reach of their current enterprise across the business value chain is the best selection.

A cash concentration strategy

Jose Arnaldo Vieira Managing Director, International Cash Management Fleet Boston Financial

One of the most important issues for companies in Latin America is cash concentration. By centralizing your cash in one place, you can minimize the country risk, currency risk and foreign exchange exposure. But any cash concentration solution must be based on the flows of the company. If the flow of funds is from a parent company in the United States or Europe to Latin America, we have one type of solution. If the flow is from Latin America to the parent company, it requires a different solution. The best centralization strategy for your company must be based on your needs.

Cash concentration is a long-term project that naturally starts with centralizing information, such as gathering information on your subsidiaries. The second step is centralization of payments - being able to manage your cash flows on one single screen, as well as administering central controls and security. This can be done with an Internet-based product, such as our International WebConnect, which allows companies to make payments anyplace in Latin America.

In a centralization strategy, the flexibility of a banking partner is very important. You don't want to work with a partner that requires you to change all your systems at once. If you're opening a small subsidiary, for instance, you don't want to spend $50,000 to install new software. Remember that you don't centralize everything in one month - it takes some time. And you want to work with a bank that will be a true partner in the process.

A web-enabled treasury

Norberto Spangaro

E-Business Head of the Americas

Citigroup Americas

In today's volatile climate, having rapid information and understanding local market conditions and changes are absolutely a must. That means having the right information, maximizing cash flows, understanding receivables and diminishing inventories and exposure.

That means more utilization of technology, especially as more companies expand across national borders. To succeed, you need a seamless integration of treasury operations, financial transaction services, accounting systems and enterprise resource planning (ERP) systems. CitiDirect Online Banking is a secure, global, web-based delivery platform that provides access to all banking service needs from anywhere anytime.

Using the web for your treasury operations allows you to have much faster access to information. When you are operating on the web, you can see data simultaneously from various locations without proprietary software. Certainly, the web lets cash managers have access to information in a more global way.

The value in a web-enabled treasury strategy is in resolving customer service issues, accelerating collection time and improving your risk profile. Using the web also lets you know who is paying their bills faster and who is not, allowing you to increase sales and quickly update your accounts.

Again, in using the web for treasury operations, as in all aspects of electronic banking platforms, integration is critical.

A return to risk management

Gerardo L. Cahn

Sales Team Leader for Latin America

JP Morgan Chase

In the past year, we have seen a return to core risk management strategies across the region: hedging, control of liquidity and careful management of cash flows. Our clients also have become very interested in classical cross-border clearing outside of Latin America. They tend to keep their liquidity in pockets until needed, then doing the foreign exchange as fast as possible.

With this type of approach, you need all the sophistication you can get from your providers. You rely on the technology and security they provide. You need technology to know your positions, make decisions and move your money on short notice. That means a reliable, security old-fashioned partner who can answer your questions, rather than a bank that simply does the transaction for you.

If you look at the macroeconomic indicators, Latin America is likely to have a much better climate in 2002 and 2003. That presents opportunities for cash managers.

With better intelligence, you can enter and leave a market more quickly. You can be nimble and flexible, modifying your ways of collecting, extending crediting and getting information on your suppliers. This ability gives you an advantage in the marketplace. But to reduce the risk, you still need effective hedging mechanisms - especially if market conditions change.

RELATED ARTICLE: In what environment do treasurers operate in Latin America?

Jose Felix Ortiz 

Head of International Cash Management BBVA 

Latin America is at a crucial juncture, faced with economic uncertainty and political instability in certain countries. At the same time, the business world in Latin America is characterized by fragmentation, closed markets, a low rate of inter-regional trade (only 15% of foreign trade remains within the region), and the presence of few multinational firms, many of them small.

How does this situation affect corporate treasurers?

Because of the current economic downturn and its resulting impact on corporate profits, companies must optimize and rationalize their resources at all levels. It is a time when treasurers are also forced to look for solutions that allow for reduced costs and increased efficiency in the management of a company's funds.

However, a single corporate strategy to these challenges is impeded by several factors in Latin America, such as the fragmentation and lack of business regionalization, and the fact that taxes, currencies and exchange rates vary from country to country. Furthermore, institutional instability and varying payment regulations in each country make it impossible to apply a single standard solution. Treasurers must constantly adjust their cash management systems and policies to a changing reality.

What can treasurers do in the face of such uncertainty?

The solution to local problems lies in the efficient handling of payment and collection procedures in each country, customizing as necessary to fit each nation's system. In countries where compensation is slow or nonexistent, it is helpful to reduce the number of banks a company has to deal with. The company's treasury system must be very flexible in order to meet the frequent changes it will surely encounter.

In Latin America, a company cannot simply export the solutions used in its head office located in the United States and/or Europe. The environments are completely different, and such blanket solutions are unfeasible.

For a more regional approach to these challenges, it is first necessary to have in place an efficient local treasury system in each country. Starting from this point and taking into account the diverse regulations, fiscal requirements, collection-payment systems and the situation unique in each country, a regional bank can design a company-specific solution, taking into consideration the firm's operating system and financial needs.

BBVA, as a global bank leader in Latin America, is able to offer regional and local solutions through its presence in 11 Latin American countries and through its relationship with first-class local banks in eight countries of the region. These cash management solutions are custom-designed for each corporation, taking into account the Latin American country where it operates.

BBVA's services include:

* Information about all your accounts with the BBVA Group and other banks

* Operations in real time

* International money transfers through our electronic banking system

* Transfer of funds between countries

* Real or notional cash pool

* Specialized cash management teams in each country and at a regional level that will recommend the best solution for your corporation.