TECHNIQUES FOR VALUING AND REACTING TO BLOCKED FUNDS PROBLEMS IN LATIN AMERICA
GEORGE W. TRIVOLI AND JAMES. I. BULLEN
This chapter reviews and categorizes the various techniques for anticipating and reacting to blocked funds in several Latin American countries. "Blocked funds" refers to the process utilized by some governments of regulating transfer of foreign exchange out of their respective countries. In some cases, the government might make its currency inconvertible into other currencies, thereby fully blocking transfers of funds abroad. This problem is gradually gaining importance and recognition for multinational firms. For example, according to the Business International Money Report:
[P]erhaps the greatest challenge facing financial executives is how to free up corporate funds blocked in high risk environments. Indeed, the growing maze of restrictions on the remittance of dividends, royalties, interest and principal repayments is trapping corporate profit in the weak currency countries. 1
An indication of the magnitude of the blocked funds problem may be gained from the situation in the airline industry. Data from the International Air Transport Association (IATA) in Geneva show that the industry's total blocked funds nearly tripled between 1979 and 1983. Between 1981 and 1984, in the Dominican Republic alone, $164.8 million dollars in accumulated blocked funds was recorded. 2
While solutions to blocked funds problems are of obvious interest to companies investing, trading, and operating in LDCS, they are also of great importance to the countries themselves. These countries are in desperate need of new investment to stimulate their economies and provide employment. Investors concerned about getting their funds out of a particular country will tend to give low priority to new investments in that country.