Emerging markets: Capital restrictions and the treasury challenge
Corporates have a variety of tools at their disposal when it comes to getting around regulatory restrictions relating to cross-border liquidity and currency management.
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 around currency 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.”