Transition to prosperity country pro file In a country that has faced so many obstades in the last decade, our team in Moscow has had its share of hard work. While there's still a lot to do, they are walking a new path - one of great potential and optimism. Cutting costs Recovery plans Minimizing risks Market maximization - International appeal Complex situation What's NewS Issue 3 April/May 2000 "J Although the crisis in Russia created substantial losses for most banks, by and large, Rabobank International was left untouched. RI's country manager for Russia, Maarten Pronk, explains how that is possible despite the fact that we had a large Russian country limit available at the time. 'A combination of factors can be mentioned, the most important of which are the caution we used in participating in syndicated transactions, our quick access to locally available information and the concentration on the F&A sector,' he says. No stranger to economie turmoil, Pronk had already experienced new currencies and external debt crises while working in South America in the mid-1980s. In the wake of the crisis, careful evalua- tion of our necessary infrastructure in Russia played a role in reducing costs. The knowledge that violent changes in di- rection are not uncommon in emerging markets, combined with a number of un- favourable trends in the domestic Russian economy, had already alerted the manage ment of Moscow office. Infrastructure was built up in such a manner which would enable the office to reduce expenses rapidly when needed. With the obvious need to 'scale back' to the then available market op- portunities and RI's risk appetite, a total cost re- duction of 42% was ob- tained in a process which included closing some de- partments and reducing others. After receiving the responsibility for debt recovery of the Russian portfolio, the Moscow office managed to structure some remarkable recoveries. The most notice- able was that a local bank in Moscow with a negative equity of over USD 300 million could be persuaded to repay the uncovered portion of an ECA insured deal, while that same bank was also in- strumental in structuring a debt for assets swap in order for it to be liberated front a guarantee issued previously in a forfait transaction. At present, the operational arm of RI in Russia, Raboinvest, has man aged to create its own niche by offering a sophisticated version of the soft commod- ity repo in which a western trader backs up the repurchase obligation of our local counterparty. The first transaction was hooked recently. This structured trade fi- nance approach ntitigates credit risks sub- stantially and is especially suitable for ap- plication in the more complicated emerging markets. Before the end of the year, a total of more than USD 50 million is expected to be in the books. 'Our focus F&A customers are clearly quite interested in this product which expands their choice of financing alternatives,' says Pronk. Additionally, the Moscow office has become quite active in solicit- ing business front financial coun- terparties, which involve no, or an ab solute minimum of risk. Just to give an example, a mid-10 digit USD volume is expected for cash covered L/C transac tions only. This is just one of the ways in which, through the proper use of risk ntit- igants, and an intensive sales effort, rea- sonable results can be obtained despite the general perception of operating in a haz- ardous environment. ing is structural rather than an incident. It's still too early to say, but the signs look good. In general, we're maintaining our optiniistic, yet cautioned, outlook for the future of the market.' While the market signals remain encour- aging, the Sao Paulo team is making sure they optimize the opportunity. 'We're go- ing to pool our resources as much as pos sible,' Van Schelven says. 'This means we'11 keep doing credit, but we're also do- ing other things. Our clients are express- ing a lot more interest in M&A, and we'11 encourage these discussions. In terms of long-term financing, our credit depart- ment is preparing to meet our customers' needs for these services. We'11 meet any challenge we have to - the opportunities are all rhere.' José-Roberto Machado The devaluation and im- proved market conditions have also brought in a mas- sive inflow of foreign direct investment. In 1999, for eign investors pumped USD 29 billion into the market, covering the need in bal- ance of payments and even generating a surplus. And this year, the projection is USD 23 billion - an amount that already covers Brazil's account deficit. 'After the devaluation, in- dustrial companies became cheaper in dol lar terms,' explains Machado. 'Consumers are returning to the market - with a popu- lation of 160 million, this translates into an immense potential in growth. The need for intproving services like water and Utili ties presents investors with great opportu nities.' And, with the largest privatization program in the world, a process which stalled in 1999 but is now back on track, investment oppor tunities are even more inviting. 'Demand for long-term financing is on the rise,' says Van Schelven. 'While this is encouraging, it's also complicated.' This is where the country limit committee comes in, who sets the limits for emerging markets each year (see sidebar). While it was clear the situation in Brazil was intproving, fun damentais such as the debt position re main the same. The one-year limit set in 1999 was not changed in this year's report released by the committee in February. 'We've seen years which began positively, but then the crisis returned. We have to be careful before we conclude that we're see- Maarten Pronk

Rabobank Bronnenarchief

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