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HSBC and the Argentine Peso Crisis

Extracts from this document...

Introduction

I. INTRODUCTION G3 Consultants Inc. has been faced with the assignment of determining the feasibility for HSBC Holdings to invest more money into their Argentine subsidiary. Argentina is currently in the midst of a recession that has lasted nearly 4 years. After considerable help from the IMF in an attempt to control impending foreign debt, a mix of Argentina's political and monetary policies has resulted in the instability of the Argentine economy and the suspension of payments leading to an uncontrollable build up of national debt. The questionable sustainability of the Argentinean government has led to a freeze in the cash flow of foreign investors in the country, consequently placing HSBC as one of the main investors to decide whether or not to permanently cut its losses and fully pull out of Argentina or believe in Argentina's historical economic climate and continue to invest in the hopes of an outstanding upside to the current crisis. G3 Consultants Inc.'s objective is to evaluate and analyze the crisis and provide HSBC Holdings with a recommended course of action. II. KEY ISSUES G3 Consultants Inc. has been faced with the assignment of determining the feasibility for HSBC Holdings to invest more money into their Argentine subsidiary. In order to analyze the feasibility of this investment opportunity, all of the key issues must first be presented and analyzed in order to understand the full picture. Obviously, in this case the various economic and political factors of the economic crisis must be visited to understand the current economic situation of the country for foreign investment. We will now proceed to introduce these key issues to be considered: 1) Fiscal Policy Argentina flourished from 1991 to 1997 boasting real GDP of 6.1% including massive revenues from international privatization of Argentine-owned companies and the federal government's fiscal policy is to be blamed for not using these excess reserves to pay off public debt. ...read more.

Middle

1) Availability of credit enhancement or guarantee from Government and/or multilateral agency > Agreements to provide reciprocal investment and avoid double taxation The government of Argentina, in order to provide reciprocal investment and avoid double taxation, enforces bilateral investment treaties (BITs) with over 50 countries seeking foreign investments to advance its development process. Their protectionist investment efforts involve the adoption of bilateral treaties which promote stable and market-oriented policies towards foreign investment through: * Non Discriminatory Treatment: Investment where each contracting party shall at all times be accorded fair and equitable treatment in the territory of the other contracting party. * Transfer of Payments: Each contracting party guarantee to an investor of the other party the unrestricted transfer of investments and returns without limiting the generality of the foregoing, each contracting party also guarantee the unrestricted transfer of fund in repayment or loan directly related to a specific investment, the proceeds of the total or partial liquidation of any investment; wages and other remuneration accruing to a citizen of the other Contracting Party. * Expropriation: BITs establish clear limits on the expropriation of investments and provide for payment of prompt, adequate and effective compensation when expropriation takes place. * Disputes between the contracting parties: BITs give investors from both Parties the right to submit an investment dispute with the treaty partner's government to international arbitration. There is no requirement to use that country's domestic courts (4). The agreements listed below have been signed by Argentina to promote and provide Reciprocal Investment Protection. COUNTRY LAW DATE COUNTRY LAW DATE Germany Law 24.098 10/06/1992 Italy Law 24.122 26/08/1992 Armenia Law 24.395 09/11/1994 Jamaica Law 24.549 13/09/1995 Australia Law 24.728 07/11/1992 Lithuania Law 24.984 03/06/1998 Austria Law 24.328 11/05/1994 Luxembourg Law 24.123 26/08/1992 Bolivia Law 24.458 08/02/1995 Malaysia Law 24.613 07/12/1995 Bulgaria Law 24.401 09/11/1994 Morocco Law 24.890 05/11/1997 Canada Law 24.125 26/08/1992 Mexico Law 24.972 20/05/1998 China Law 24.325 11/05/1994 Nicaragua Law 25.351 01/11/2000 Korea Law 24.682 14/08/1996 Netherlands Law 24.352 28/07/1994 Costa Rica Law 25.139 ...read more.

Conclusion

the following roles: as the Organizer, Underwriter, Placer and Fiduciary for the Octava Serie del Fideicomiso Financiero CGM Leasing by $24 million; as Organizer and Placer for the Quinta Serie del Fideicomiso Financiero de Compa��a Financiera Argentina (CFA) by $170 million and Placer for the Cuarta Serie del Fideicomiso Financiero Best Consumer Finance by $68 million. PERSPECTIVE i. The Bank, as member of the HSBC group, has a strong position in the local market- forming the most complete group of integrated financial services in the country. The HSBC group in Argentina, continues as provider of the most diverse products, which includes not only a large range of bank services, but also of insurances and administration of pension and investment funds. ii. The acquisition of BNL allowed HSBC to duplicate its clients and almost triple its network of HSBC branches allowing HSBC to become one of the leaders in the banking market. iii. The Bank proposes to continue with its leadership position in Commercial Banking. They will also continue to assist with credit development, trade commerce and transactional banking. iv. The segment of Agricultural Banking will continue to function headed by its group of specialists. This is in response to the needs of its clients by means of products adapted to the peculiarities of this business. v. The area of Foreign Trade will keep on accompanying the companies that develop its international business, offering a wide range of pre and post financing of exports, opening of credit letters of imports and post financing of imports across its Specialists' unit of Foreign Trade and Divisions Network. vi. In Global Banking, the challenges will be principally to consolidate HSBC's leadership position on the corporate market, to increase clients' base, to increase the selling of products and services of the same, to be present at the needs of clients' financing. All these actions are carried out while the Bank supports its firm position of liquidity and conservative politics while also keeping in mind credit and market risk. XI. ...read more.

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