Capital restrictions that prevent the movement of locally denominated currency offshore are a challenge for corporate treasurers in many emerging markets.
India, Bangladesh, Sri Lanka and Vietnam have the tightest restrictions aroundcurrency movements in Asia, while the likes of China, the Philippines, Thailand, Korea, Indonesia, Malaysia and Taiwan are semi-restricted.
In India, for example, overseas money remittance is effectively based on an import payment; and in Taiwan, the regulator sets a limit per entity and each payment has to be checked on a terminal from the regulator to advise the position against this limit.
“In countries where exchange-control regulations restrict the cross-border movement of funds, there are a number of repatriation strategies that can be adopted,” says Sandip Patil, Asia Pacific head of liquidity management services and head of sales for financial institutions, treasury and trade solutions at Citi.
“Examples include intercompany loans, dividend payments, moving management fees to a parent company, royalty payments from subsidiaries, invoice pre-payment on expected future exports, capital repatriations as permitted, and transfer pricing changes to optimize treasury key performance indicators.”
According to Patil, zero-balancing structures are becoming increasingly popular in restricted markets as they help to improve treasury efficiency while adhering to cross-border constraints, although domestic structures and change of trade terms are more widely used.
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