Latin America Trade Trends May 2006

1 Global Transaction Services Latin America Trade Trends May 2006

2 Agenda I. Latin America: Background Economic Background The Stealth Revolution II. Latin America s International Trade III. Trends in International Commerce Economic Trends Financial Trends Business Trends IV. Conclusions

3 Global Economic Growth Will Continue Global GDP 1997-2007 4GLOBAL GDP GROWTH 5.0% Percentage 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 Fuente: FMI, Citigroup Catch-up Trend? Recession

U.K. 4 Latin America is Driving Global GDP 4REGIONAL GDP GROWTH Regional GDP Growth Percentage 8% 7% 6% 5% 4% 3% 2% 1% 0% 4Per cent USA Euro-zone Japan Latin America Asia ex-japan 2004 2005 2006 2007

5 Latin America s Commercial Balance Has Improved 4AGGREGATE CURRENT ACCOUNT BALANCE Aggregate Current Account Balance 25 Billions of U.S. dollars 0-25 -50-75 Most favorable balances over the past decade US$35BB FDI p.a. Remittances > $45BB Growing Reserves Total Excluding Brazil -100 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05

6 China Has Become a Leading Commodities Consumer Share of 4SHARE Global OF Consumption GLOBAL CONSUMPTION IN 2003 Cement Cotton Steel Lead Copper Aluminum Soybeans Wheat Oil China United States 0% 5% 10% 15% 20% 25% 30% 35% 40% Percent *Source: New York Times, December 6, 2004 p C4

7 Latin American Exports Complement Chinese Demand Aluminum Petrol Gas Cu Nickel Platinum Rubber Cement Steel Coal Iron Edibles Cuba Venezuela Ecuador Perú Colombia Bolivia Argentina Chile Brazil

8 Latin America is Enjoying a Virtuous Economic Circle High Chinese Growth 8-9% p.a. in 05 & 06 and India? Demand for Commodities Improved Latam BoP Reduced Risk Perception Growth is slowing but demand for Latam products continues

The Stealth Revolution: Explosive Growth in Southern Cone Agricultural Production 9 Soybean production from 22 mt to 49 mt in 10 years S. American has been #1 soy exporter since 1996 Brazil holds #1 beef herd, #2 poultry exporter, #3 in corn, top 5 in swine, cotton explosion Source: MZ Taylor, Top Producer Magazine

10 The Cerrados Region is Larger than Europe Land costs are 1/10 th Iowa s Source: MZ Taylor, Top Producer Magazine

11 Southern Cone Production Costs are 80% of US Costs Soybean Production Costs USA, Argentina and Brazil Source: MZ Taylor, Top Producer Magazine

12 Infrastructure Improvements Will Reduce Variable Costs Amazon-Madeira barges cut $1/bu.off freight Ferronorte Railroad will cut freight in SW Mato Grosso from $56/ton to $25/ton in 2003 Amazon Highway = 70 /bu

13 Experts Comments on the Stealth Revolution Conversion of tropical soils like the Cerrado will be the Green Revolution of the 21st Century. Norman Boriaug What s going on in Brazil today is the most important shift in global agriculture since the settlement of the U.S. Midwest in the 1800s. Randy Schnepf, USDA The existing scope for agricultural expansion in Brazil is equal to the total cropland resource in the US. USDA, Jan. 21, 2003 Source: MZ Taylor, Top Producer Magazine

Rising Mineral Prices and Volumes Have Also Improved Latin America s BoP 14 Impact of Boom in Industrial Commodities 2003-2005 30 25 Billions of U.S. dollars 20 15 10 5 0-5 Brazil Chile Colombia Mexico Peru Venezuela Change in current a/c Change in mineral exports

15 Political Risk May Impact the Region Numerous Elections Electoral Calendar Bolivia December 2005 Chile January 2006 Costa Rica February 2006 Peru April 2006 Colombia May 2006 Mexico July 2006 Brazil October 2006 Ecuador October 2006 Venezuela November 2006 Nicaragua November 2006 Argentina April 2007? Political Shifts Bolivia Peru Ecuador Mexico?

Latin America s International Trade Trade Flows Latin America s Commercial Growth

17 Latam s Main Partners are the US, EMEA and Latam World Trade has doubled the last 10 years, quadrupled the last 20 World Trade (Source WTO): 1983 $ 3.7 Trillion 1993 $ 7.4 Trillion 2003 $14.8 Trillion Billions $ Destination Origin Asia EMEA LATAM Mexico NA World Asia 1,201 562 39 44 489 2,335 EMEA 575 3,688 68 23 460 4,814 LATAM 39 74 64 8 85 270 Mexico 4 7 3 168 182 NA 245 254 68 116 574 1,257 World 42,064 4,585 242 191 1,776 8,858 Sources: WTO Intra and Inter Regional Merchandise Trade, 2004 INEGI - Mexico

18 Latam s Foreign Trade is Experiencing Long Term Growth US$ Bn 600 500 400 300 200 100 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 E Latam Exports 106 102 105 109 126 149 160 174 164 164 194 189 187 212 282 290 300 Latam Imports 86 95 110 123 141 177 182 213 215 186 205 204 177 187 213 215 220 Total Trade 192 197 215 232 267 326 34a1 387 379 350 399 393 364 399 495 505 520 Source: WTO

Exports have Driven Recent Economic Recoveries Exports and Imports have grown 13% and 10% respectively, exceeding 4.4% economic growth. 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% 19 TEQUILA ASIAN CRISIS RUSSIA ARGENTINA 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 E Exports Imports Latam GDP

Trends in Latin America s Trade Economic Financial Business

21 Commercial Agreements are Proliferating Trade Agreements Signed and Under Negotiation in the Americas Source: D. Smith

22 Latin America is Enjoying Ample Liquidity Year Total Trade (X + I) $US BB Average Financed $US BB 2001 313 72 2002 294 66 2003 314 63 2004 370 70 2005 E 414 73

23 Borrowing Costs Have Declined Sovereign Debt Spreads: Latin America & Brazil 900 800 700 600 500 400 300 200 100 Basis points, stripped spread Brazil Latin America composite 2004 2005 2006

24 The Dollar has Depreciated versus Latin Currencies Real Appreciation 50% Pct appreciation vs. U.S. dollar 40% 30% 20% 10% 0% -10% ARS BRL CLP COP ECS MXN PEN VEB Feb '05 - Feb '06 Feb '04 - Feb '05

25 Remittances are Rising Total: US 45.2 BB Caribbean: $6,248 Central America: $7,791 Mexico: $16,613 South America: $14,629 Source: Manuel Orozco, Inter American Dialogue

26 Emigrants Impact Exceeds Remittances Engagement Index Annual Trip (or more) Weekly Call (or more) Nostalgic Purchases Economic Aid for Family and Friends Bank Account in Home Country Mortgage Remittances > US$350 50 45 40 35 30 25 20 15 10 5 Engagement with home country (%) 0 South America Central America Mexico Caribbean LAC Source: Manuel Orozco, Inter American Dialogue

27 Growing Letters of Credit in Latam vs Global L/C Slowing Total SWIFT Messages Sent MT700 2003 2004 2005 2005 vs 2004 Growth Argentina 2,529 4,759 6,052 27% Bolivia 1,744 1,564 1,619 4% Brazil 8,472 10,523 9,000-14% Chile 36,988 40,654 44,530 10% Colombia 8,298 9,272 9,707 5% Costa Rica 2,548 2,548 2,692 6% Ecuador 5,185 5,829 5,670-3% El Salvador 2,985 2,850 2,385-16% Guatemala 1,995 1,927 2,167 12% Haiti 129 125 165 32% Honduras 525 739 828 12% Jamaica 125 118 101-14% Nicaragua 186 384 529 38% Panama 8,668 8,924 8,556-4% Paraguay 1,764 1,719 1,759 2% Peru 9,669 10,715 10,962 2% Puerto Rico 2,629 2,506 2,213-12% Dominican Rep. 1,846 1,222 1,297 6% Trinidad and Tobago 1,300 1,475 1,328-10% Uruguay 5,829 5,687 5,573-2% Venezuela 1,707 11,990 17,473 46% Central & Latin America 105,121 125,530 134,606 7% Growth since 2004 after crises in Argentina and Venezuela 2005 Latam L/C volumes grew 7%

28 Letters of Credit Primarily Benefit Asian Exporters Issuing Country Total 2004 Asia Latin America North America Western Europe CEEMEA LATAM 143,119 63,842 37,290 24,756 16,728 503 Global 5,244,695 3,742,631 89,984 290,703 920,257 201,120

29 Buyer & Seller Needs Shift with Move to Open Account LOW OPEN ACCOUNT HIGH Risk of Non-Delivery DOCUMENTARY COLLECTION LETTER OF CREDIT Risk of Non-Payment BUYER S RISK Buyer Needs... Purchase Order Processing CASH IN ADVANCE Seller Needs... Liquidity (DSO) SELLER S RISK Financing Inventory Payables Discounting Integration with procurement and accounts payable systems Working Capital Financing Risk Mitigation Preparation of Exporter Letter of Credit / Docs Buyer Financing Working Capital Financing

30 Other Trade Services Trends In Argentina and Venezuela, increased regulatory requirements have forced banks to undertake a larger role interfacing with authorities. Increased offering of Electronic banking for trade transactions. Local currencies strength has facilitated importers use of open account payments instead of trade services payment instruments in Colombia, El Salvador, Brazil. Growing Latin America middle market is driving increased demand for LC transactions with Asia.

New Trade Finance Focus: Linking Trade Solutions to Integrated Supply Chains 31 Transaction Processing and Settlement Financing Information Risk Mitigation and Credit Enhancement 1 2 3 4 5 6 7 8 9 Supplier Procurement Delivery Production Sales Transport Distribution Vending End-User Settlement Documentary Collections Standby LC's Financing Open Account Supplier Finance/PREPS Commodity Finance Financing Inventory Finance Commodity Finance Settlement Documentary Collections Export LCs Financing Receivables Finance Import Finance Export Finance/ Discounting Bills Commodity Finance Settlement Documentary Collections Financing Receivables Finance Distributor Finance Financing Payables Finance Distributor Finance Risk Mitigation Confirmations Information Electronic Delivery Information Electronic Delivery

32 Other Trade Finance Trends Multinational s head office borrowings have replaced bank debt due to market conditions in several countries Preference for Local US Dollar and LCY borrowings versus Offshore US Dollars Borrowing due to low and stable local interest rates changing??? Appetite for longer tenor transactions with higher spreads to avoid higher future rates CAFTA is leading to new investments in Central America & the DR Channel Finance has become a key focus among regional treasurers Risk Mitigation Remains an Important Factor facilitating Trade Deals

33 Industry Consolidation + Specialization = Regionalization Consolidation in Select Industries Retail Telecom Cement Beverages Foodstuffs Energy Specialization in Production

34 Management Regionalization Occurs in Stages 24% 36% 30% 10% Stage 1 Stage 2 Stage 3 Stage 4 Re-engineering In-country Finance functions Regional Cash Management Shared Service Center Regional Treasury Center Outsourcing Payments and Collections Rationalizing Banking Relationships Standardized Reports and Projections Best Practices Replicated across Countries Sub Regional Centers More Sophisticated Account Structures Access to A/C Info and Balances FX Risk Management Consolidated file-based payments Reconcilement and GL reporting Payroll Management Centralized management of collections Inter-company Lending Short-term investments Financing payables or receivables Centralize management of Trade Products Centralize foreign exchange

35 Regional Service Centers Are Established Throughout Latam Globalization Regionalization Best Practices Local Process Improvement

36 Risk Mitigation Remains Important in Latam Increasing Use of Derivatives for FX and Interest rate Risk Country Risk Mitigation Alternatives are Key for Volatile Countries ALADI Insurance

Our Own Infrastructure has Globalized 37

38 Conclusions Latin America will grow at over 4% in 2006; the Primary Risk is Political Latam Trade will Grow over the Long Term Latin America Enjoys Ample Liquidity Financing Alternatives for working capital, imports and exports have multiplied Latin America Treasury Management is Increasingly Regionalized Our Own Trade Definition has Expanded Supply Chain Management is increasingly relevant Trade s Operational Infrastructure has become globalized and more efficient

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