Businesses are loading up on credit. Spending could follow. At JPMorgan and Bank of America, undrawn credit commitments total nearly $1 trillion, a 20% increase from a year ago. (WSJ)

Vietnam’s pandemic lockdown squeezing container supply. Container lines and forwarders are warning that Vietnam faces a shortage of containers in the coming weeks owing to a combination of disrupted sailing schedules of ships returning to Asia, and trucking delays and factory closures due to a COVID-19 outbreak. (JOC)  

Shortages increase suffering of Lebanon's exhausted population. With dwindling foreign currency reserves and shortage of U.S. dollars, cash-strapped Lebanon is unable to import enough gasoline and diesel fuel to run its power stations and supply private generators, businesses, factories, hospitals and gas stations. (Reuters)

Pakistan rents out PM Imran Khan's house to overcome financial crunch. An official residence of Pakistan Prime Minister Imran Khan has been put on rent as the country witnesses a financial crunch. (Mint)

Four charts on the Dominican Republic’s crisis response and recovery. As one of the fastest-growing and most dynamic economies in Latin America and the Caribbean, the Dominican Republic entered the COVID-19 crisis in a relatively strong position. (IMF)

Zambia: Amid economic collapse, Zambians head to the polls. Zambians head to the polls on 12 August amid mounting economic challenges, reports of election-related political violence and COVID-19. The country is reeling from colossal debt, corruption, runaway inflation and a weakening currency. (allAfrica)

United Kingdom—Northern Ireland protocol complicates trade negotiations. The status of Northern Ireland (NI) has consistently been one of the most contentious aspects of Brexit. The tenuous political quagmire, combined with the fact that it hosts the only land border between the UK and the EU, has caused a plethora of economic and sociopolitical problems. (Global Risk Insights)

Russia’s economic influence in the Mediterranean. Russia has returned as a major actor in the Mediterranean. Yet a closer look at its economic tool kit in this region suggests concerns about Russian economic capabilities are likely overstated. (Carnegie Endowment)

Hardline cleric Raisi sworn in as Iran president amid tensions with West. Hardline Iranian President Ebrahim Raisi took the oath of office before parliament on Thursday, with the Islamic Republic's clerical rulers facing growing crises at home and abroad. (Reuters)

Era of cheap natural gas ends as prices surge by 1,000 percent. The era of cheap natural gas is over, giving way to an age of far more costly energy that will create ripple effects across the global economy. (Business Mirror)

Resilient factories battling with delays, rising costs. Factories across the world are suffering from supply bottlenecks which sent prices skyrocketing in July, while a new wave of coronavirus infections in Asia demonstrated the fragile nature of the global recovery. (HSN)

Medical supplies run out in Lebanon as country looks back a year after Beirut port explosion. Myriad problems have made life hard for all importers, and in the medical sector, shortages have emerged. Anaesthesia, pace makers, and laboratory tests are all in short supply, said Salma Assi, the head of the medical equipment importers' syndicate. (Arabian Business)

Shipping snags prompt US Firms to mull retreat from China. Importers are contending with a perfect storm of supply trouble—rising prices, overwhelmed ports, a shortage of ships, trains, trucks—that is expected to last into 2022. (US News & W.R.)

The chip shortage is a self-solving problem. Government subsidies will lead to overcapacity and waste. (The Economist)

The Latin American region is among the worst hit by the pandemic with death tolls continuing to rise and reported new cases still high. Its weak health systems, high poverty levels and large urban populations have been blamed for the high rates of Covid infections. 

With 8% of the world’s population, Latin America has suffered nearly one-third of global deaths from the pandemic, as well as its worst recession in more than 100 years. Vaccination rates are low because of the difficulty of securing vaccine supplies, and some countries have inoculated less than 10% of their populations. Officials overseas complain that U.S. and European governments have monopolized available stocks of vaccines. 

Despite the impact of the pandemic, limited access to borrowing and shaky public finances have restricted how much Latin American countries can spend to mitigate rising poverty and unemployment. The UN Economic Commission for Latin America (ECLA) earlier this year said government debt in the region would likely rise from 68.9% to 79.3% of GDP between 2019 and 2020, making Latin America and the Caribbean the most indebted territories in the developing world. 

The International Monetary Fund (IMF) is close to agreeing a $650 billion issue of new special drawing rights, the largest such allocation in its history, in response to the pandemic. Latin America stands to receive $68 billion of the new issue, but some regional experts believe that this will not be enough to get the region out of its current problems. There have been discussions about redirecting IMF funds to the poorest nations, but this would exclude middle-income countries, the category covering most of Latin America. 

There are rising voices for a new IMF facility to redirect surplus resources from wealthy to middle-income countries. The concern is that if the economic crisis in Latin America gets deeper, there will likely be more protests in the streets. The consensus is that Latin America needs to come out of this pandemic with a new social contract where basic public services and social protection are adequately financed. Wealthy nations are being urged to immediately send surplus Covid-19 vaccines to the region as a first step. The U.S. Administration is responding with shipments of its surplus vaccines to various countries. 

The latest data show that the jobs recovery in Latin America is lagging the overall economic recovery as the pandemic continues to hinder fully fledged economic normalization. Although job creation should pick-up in the coming months, the quality of the regional job market is likely to remain weak for much longer. As a consequence, living standards will likely remain weak for much longer, stoking the potential for labor and social unrest. 

The IMF estimates that Mexico’s economy will grow 6.3% in 2021. Previously the IMF estimated growth of 5% for Mexico. However, it was concerned about the slowdown in growth, the Delta variant of the pandemic and the withdrawal of stimulus. The Mexican economy rebounded 19.7% year on year in the second quarter of 2021, buoyed by good performance across all sectors. Industrial activity rose 28.2% year on year, while the services sector grew 17.1%. Both sectors have the largest impact on GDP. The agricultural sector grew 6.7%. Mexico, the second-largest economy in Latin America after Brazil, saw it economy contract by 8.3% in 2020, its worse contraction since the 1930s. 

 

 

The problems for Brazil’s President Jair Bolsonaro continue to mount. The biggest threat is that his popularity has been crashing month on month. He has been lambasted for the miserable reaction to the pandemic and the continued threat it has posed.

The Delta variant is running rampant in the country and efforts to bolster vaccination efforts have been very weak. Those individuals with connections and who are living in the wealthier suburbs have access to vaccines; but the rural areas and the favelas do not, and these are the people that put him in power. 

Now he faces an investigation into his unfounded claims of voter fraud. This was a tactic he tried to borrow from the Donald Trump campaign. (Bolsonaro has long styled himself as the “Latin Trump.”) The difference is that Brazil has stricter libel and slander laws, and his accusations have been leveled against a variety of judges and officials who are incensed at the attacks. A total of 18 former and current Supreme Court justices have gone on record disputing his claims. If he is found guilty of violating these laws, he will be disqualified from running. Bolsonaro missed the deadline to present proof of his claims.

The real issue for Bolsonaro is that he has failed the people who had put their faith in his populist message. He asserted he would eliminate corruption, but most of his inner circle has been caught engaging in the usual graft. He promised jobs and those never materialized. He promised expanded programs for the poor, but the funds are lacking and he had to borrow. In the middle of all of these issues, there has been the revitalization of former President Luiz Inácio “Lula” da Silva, who would win handily if the vote was held today.

As supply chain disruptions continue to interfere with international business operations, credit professionals have run into a range of issues when doing business in China. In a recent FCIB International Credit & Collections Risk Management Survey, creditors shared their experiences as well as advice for credit professionals who are new to doing business in the country. (The survey also covered Hong Kong, India and South Korea.)

“For the past 12 months, we have been experiencing an increase in the number of orders being delayed to our customers in Asia due to vessel or transport delays,” a survey taker said. “Customers are unable to pay for our product until goods arrive at the port; at which time, they get clearance documents to apply for payment at their banks. Therefore, most of our orders to Asia are paid late.”

This has been a similar narrative for other credit professionals doing business in China, as about two-thirds of the respondents doing business in that country reported payment delays have either stayed the same or increased in recent months. One credit professional also noted issues with “goods that make it into the port and then onto the customer.”

Through these experiences, creditors have gained more knowledge on how to handle delayed payments while doing business in China. Survey participants advised having thorough “know your customer” processes before establishing business partnerships with customers residing in China.

“Really know your true customer,” a survey taker said, referencing the five Cs of credit: character, capacity, collateral, capital and conditions. “Understand its business model and always look to get financial disclosures.”

Two other survey participants echoed this advice, adding that credit professionals should sell on cash-in-advance terms or at least for the first invoice.

Contractually, a widely mentioned tool among credit professionals taking the survey was letters of credit. One credit professional stated that letters of credit can be used “to secure debt in case of unforeseen delays in payment.” One participant provided three tips on how to devise these documents:

• Ensure the letter of credit is being issued by a top tier bank and that your bank has a positive business relationship with it.
• Ensure you get the letter of credit opened up within five business days of the trade—any longer could impose market risk.
• The less complicated the letter of credit’s verbiage is the better to eliminate potential discrepancies that could hold up payment in the future.

When negotiating contract details with a potential overseas customer, a complete understanding from both parties is critical to ensure business runs smoothly—especially when discussing payment terms. 

“Make sure every part of the payment term is explicitly explained and understood,” a survey taker said. For credit professionals having difficulty collecting on payments in China, another credit professional recommends having “someone in [China] to assist with collection negotiations.”

Yet another credit professional suggested compromising with customers in the country. “Make a contractual compromise that stipulates the credit terms and the troubles they will incur if payments are not being made according to the contract such as suspension of service.”

FCIB members can access the complete results of the International Credit & Collections Risk Management Collections Survey via The Knowledge & Resource Center; login required. The current survey closes today. It covers Greece, Italy, Spain and the United Kingdom. Participation in the survey provides members and nonmembers with the results. The International Credit & Collections Risk Management Survey—the only one of its kind in the United States and Europe—allows you to further the collective knowledge of global credit professionals by sharing real-time credit and collection experiences.

This article first appeared in NACM’s eNews.

 

 

 

Week in Review Editorial Team:

Diana Mota, Editor in Chief and David Anderson, Member Relations