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Mitigating Risk in Mexico

When doing business in Mexico, conduct customer research and investigations thoroughly prior to the start of business so that you know exactly who your company is selling to, advise credit professionals who have customers there.

“Check the parent [company], understand the organization's structure, get good contacts, make certain your address [meets] their requirements, and constantly follow up,” one survey taker shared.

Yet another credit manager suggests collecting cash in advance for at least 50% of the order to mitigate potential losses. “Currency fluctuations will cause major payment delays,” he noted. “We frequently are only paid when holding future orders.”

Watch exchange rates closely because customers will try to stall and shop for the best day to exchange currency, a respondent also said.

The above are just a few of the many suggestions from credit professionals who conduct business in the country, based on results of the latest FCIB International Credit & Collections Survey, which also covers Australia, Canada, Puerto Rico and the United States. The complete results are available to FCIB members.

Attorney Romelio Hernandez, of HMH Legal, provided some additional advice for working in Mexico. Checking for loans and liens at the Registro Unico de Garantias website “is a must,” Hernandez said. Besides being easy to use, “it is free and provides results in seconds,” he added.

Hernandez also advises using a credit application as a way “to have your customer agree to your terms and conditions of sale, which should be included on the back.” In addition, he noted that “different terms and conditions of sale (from those for domestic sales) should always be used. These should consider the legal environment there and give advantages to the creditor.”

Consider using different security devices “in addition to pagarés, such as the new pledge, which can be easily implemented on the terms and conditions of sale,” he continued. “Key terms of sale and good security devices will create the right incentives for customers in Mexico to negotiate more favorably toward their creditor, who will be in a better a position to enforce its claims.”

Hernandez will share more insight into doing business in Mexico as part of the FCIB international sessions at Credit Congress, June 11-14, in Grapevine, Texas. The session, Securing Credit Sales in Mexico, will teach creditors about the most common security devices and contracts available in Mexico and how to identify challenges and opportunities in each of these devices as well as how to prepare a cost-effective plan to implement them on future sales. The discussion will include title retentions, pledges, mortgages, guarantee trusts, consignments and pagarés.

Deep Divisions Paralyze Poland

Chris Kuehl, Ph.D.

The right wing took power in Poland’s parliament in October and has been aggressive in undoing nearly everything the liberal leaders had done previously. The justice system has been brought under its control and so has much of the media.

Nationalists who have been behind this push to power are wildly enthusiastic, and those who are being sidelined are desperate and resorting to a parliamentary siege. The liberal parties accuse the followers of the Law and Justice Party of trying to create an autocracy based on one-party rule, and the leader of that party—Jaroslaw Kaczyński —does not disagree.

This pattern has been repeated in many other East European states—most notably Hungary. The assertion is that the liberal parties failed to provide for the “common man” and try to promulgate elite policies that benefit the few.

The problem is that most of the nationalists have been engaged in extensive cronyism, and it is hard to tell that anything has changed for the “common man.” There is still widespread unemployment and growth in the economy remains spotty.

The fortunes of these states rest on what is happening in the rest of Europe; and as long as there is virtually no growth in the EU, there is not much that can be done in these states. The frustration of the population is understandable, but thus far the solutions chosen are not working out very well. The confrontation in Poland mirrors those throughout Europe and is based on the same fears and antagonisms.

A Look at Venezuela

Dr. Hans Belcsák

Venezuela is as close to an economic and social collapse as any country can come just short of a full-fledged revolution. The ultimate trigger has been President Nicolás Maduro’s inane decision to pull the country’s largest existing banknote out of circulation, the 100-bolívar bill, which is worth about three U.S. cents in the black market and makes up roughly half the nation’s entire cash supply. The avowed objective of the move has been to “destroy” Colombian smugglers who have been buying price-controlled food and gasoline in Venezuela for resale at huge markups back home. To do this, we are told, they have been hoarding bolívares, which the regime in Caracas is making invalid. In reality, though, this once-booming contraband traffic has been receding sharply in recent months, for the simple reason that Venezuelan gas pumps have been running dry and stores selling at subsidized prices have not been having much left to sell.

Their shelves have been empty because of raging inflation, which is approaching Weimar-Germany proportions. The International Monetary Fund has put inflation for 2016 at 476%, which is almost certainly an understatement, official controls and subventions notwithstanding. So bad is the situation, so rapidly has the bolívar been losing value, that some stores have taken to weighing wads of paper money rather than counting the bills because the stacks needed to buy even the simplest of things have become mountainous. Prices are being revised upward almost daily; most business is being done on a cash basis; and consumers are having a devil of a time raking enough of it together for even the smallest purchases. ATMs have become mostly dysfunctional, and the bolívar’s external exchange rate has dropped so steeply that importing has become all but impossible. While the official rate is still close to Bs 7 per dollar, the curb rate hovers near Bs 2,600 per USD 1.00 these days.

People were given just two days to deposit the defunct 100-bolívar banknotes into bank accounts, and 10 days after that to surrender them to the Central Bank after being questioned by the secret police. Predictably, this proved to be not nearly enough time even in the cities, where banks are relatively easily found, and certainly not outside urban areas. The banks that were open could not handle the crowds, and an estimated one out of three Venezuelans does not even have a bank account. In the end, the president was forced to extend the conversion deadline to Jan. 2, but this still leaves millions of people stuck with piles of money that few merchants are prepared to accept knowing that it will soon be worthless. To put it differently, less than a fortnight before Christmas, Maduro with one ill-considered stroke left the nation starved for usable cash, and indications are that nowhere near enough of the new higher-denomination notes of 500; 1,000; 2,000; 10,000; and 20,000 bolívares will be printed and put into circulation to prevent the severe crunch from persisting well into next year.

President Maduro insists that what he has done was necessary to fend off a “monetary coup” and that his regime’s measures are aimed at “stabilizing” the currency. In fact, he and his predecessor Hugo Chavez have been the architects of the disaster that has been unfolding and is now playing out with business shutdowns; office closures, even by doctors and lawyers; runaway inflation; food shortages; a nose-diving exchange rate; popular protests; rioting; looting of stores and homes; and deployment of thousands of troops to contain popular unrest. The host of ills bedeviling the country are hitting particularly hard at the poorest Venezuelans, the very ones that the ruling United Socialist Party claims to defend. How long government force can keep a lid on the bubbling cauldron under these circumstances is anyone’s guess.

Global Roundup

Obama administration unveils sanctions for Russia over election-hacking allegations. The Obama administration issued an executive order on Dec. 29 authorizing sanctions on individuals and organizations it believes are involved in alleged Russian interference in the 2016 election. The White House sanctioned nine entities and individuals, expelled 35 Russian diplomats and closed two Russian compounds in New York and Maryland in response to harassment of American diplomats in Moscow. (CNBC)

Monte dei Paschi’s woes and contagion for Italy's banks. So, is the ever-worsening Monte dei Paschi di Siena (MPS) crisis just a blip in the system or is “Italy about to destroy [the] eurozone” as British tabloids would put it? Lest anyone have any doubts, the ongoing crisis involving Italy’s third-largest bank this festive season underlines the point, namely that there is serious trouble in the Italian banking world. (Irish Times)

China fault lines: Where economic turbulence could erupt in 2017. China’s balancing act isn’t getting any easier. Policymakers are grappling with how to attack excessive borrowing and rein in soaring property prices, while maintaining rapid growth. They’re also battling yuan depreciation and capital outflow pressures as U.S. interest rates rise. While forecasters have been raising growth estimates for next year and don’t expect major turbulence, there are areas they flag as having the potential to trigger a plunge in growth or systemic risk in the financial system. (Bloomberg)

Argentina’s recession deepened further in 2016. The Macri administration has its hands full. One year after taking power, the economy is not behaving as expected and the administration is running out of time to show that the changes in macroeconomic management are going to bear fruit and deliver economic growth as mid-term elections approach. (Wells Fargo)

The death of TPP: What does it really mean? Any lingering hope for passage of the Trans-Pacific Partnership (TPP) was extinguished by President-elect Donald Trump’s recent announcement of his intention to formally withdraw the United States from the agreement. So ends seven years of controversial negotiations and intense public debates over the content and anticipated consequences of the pact. Setting aside the heated rhetoric and partisan bickering, GTM unpacks in straightforward and practical terms what the demise of the TPP actually means. (Global Trade Magazine)

U.K. economy sidesteps Brexit vote hit, 2017 outlook darker. British consumers brushed off June's Brexit vote and drove the economy to expand faster than expected in the third quarter, but a hefty current account gap and weaker trade and investment raised warning flags for 2017. The economy grew by .6% from June to September, above its long-run average and beating expectations in a Reuters poll of economists who expected the Office for National Statistics to stick with its earlier estimate of .5%. (Reuters)

Trends of 2016: Soft power, cyberwarfare and Russia’s new foreign policy. The past year has seen the return of Russia to a prime position on the global stage. Gone are the days when Putin was content with maintaining Russia’s dominion over those near abroad in Central Asia, the Caucasus and the Baltics. Putin is now openly pursuing a much larger foreign policy platform. From its intercession in the Syrian conflict, to the recent renewal of its military might in the Pacific and the Baltic, Russia has restored its superpower status with a vengeance. Most interesting is the new and innovative playbook Russia is using for its foreign policy agenda. (Global Risk Insights)


Week in Review Editorial Team:
Diana Mota, Associate Editor and David Anderson, Member Relations