Insights into Long-Term Local Currency Hedging in Latin America

Explore the regional share of total TCX hedging, trends in LATAM local currency hedges over time, country-wise LATAM hedges, sector shares in LATAM production, and a case study on renewable energy in Costa Rica. Gain valuable information on managing currency risks and enhancing financial stability in the Latin American market.

• Currency hedging
• Latin America
• TCX
• Financial stability
• Renewable energy

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Uploaded on Sep 25, 2024 | 0 Views

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1. Long-Term Local Currency Hedging in Latin America Overview

2. Regional Share Total TCX hedging Asia 15% Total production: USD 6.4 bn Sub-Saharan Africa 22% Middle East North Africa 3% LATAM production: USD1.5 bn Europe / Central Asia 37% Latin America 23% ALIDE - LCY Workshop 9/25/2024 1

3. LATAM local currency hedges over time 350 120 300 100 250 80 200 60 150 40 100 20 50 0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Sum of Production, USD million (LHS) # of Transactions (RHS) ALIDE - LCY Workshop 9/25/2024 2

4. LATAM hedges, by Country (USD million) 400 300 200 100 0 -100 -200 ALIDE - LCY Workshop 9/25/2024 3

5. LATAM Sector Shares (Production) Other non-FI Manufacturing Other sectors Infrastructure Renewable Energy SME finance Other FI Microfinance ALIDE - LCY Workshop 9/25/2024 4

6. ALIDE - LCY Workshop 9/25/2024 5

7. Renewable Energy in Costa Rica Case Study The Costa Rican Institute of Electricity (ICE, produces 80% of national energy production) has long- term USD debt liabilities ICE issued two USD 500 million bonds with maturity 2021, and 2043 USD debt and local currency revenues -> currency mismatch TCX provided a 5 and 7 year USD-CRC swap on coupon payments (via commercial bank) Improved ICE s forecasting and budgeting abilities & reduced debt vulnerability to exchange rate depreciation! ALIDE - LCY Workshop 9/25/2024 6

8. TCX regional exposure in LATAM (Total Production) ALIDE - LCY Workshop 9/25/2024 7