Political Risk Event of the Month: international business and India

Submitted in part by ICBA Asia, Brazil, India and the USA via the IRC Read & Delete Monthly
 
In March 2012 the Indian legislature announced changes to its tax regulations that will have a chilling effect on foreign investment. The move overrides recent decisions from the Indian Supreme Court that were hailed as victories for multinational corporations. Compounding the challenge for businesses, the new legislation may turn in to a showdown between India’s legislative and judicial bodies, further muddying the waters in a country infamous for bureaucratic red tape.
 
In April 2012, several trade groups including U.S.-based Business Roundtable, the Confederation of British Industry and the Japan Foreign Trade Council, representing some 250,000 businesses, sent a letter to Prime Minister Manmohan Singh in response, warning that a number of their members are reconsidering expansion plans into India and that "India will lose significant ground as a destination for international investment if it fails to align itself with policy and practice around the world." The changes, and their retroactive application, could result in a significant flight of investment from an economy that is already struggling with rising inflation, a weakening currency and growing skepticism among foreign investors.

(The Political Risk Event of the Month blog post is a recurring post, on a sporadic basis, at the ICBA blog. ICBA Asia, Brazil, India and the USA, which is International Risk Consultants, Inc. (IRC), has agreed to continue to share these "event" posts with the ICBA blog.)

Using “Utmost Good Faith” to advantage in credit insurance policies

By Ron Doyle

When I started my career in credit insurance over 40 years ago, it was explained to me that Credit Insurance Policies were “contracts of utmost good faith”. When I asked for an explanation, I was told insurance policies are more than mere commercial contracts, but rather they are contracts under which each party expects the other to act in good faith. Insurance policies can be technical and they may have “fine print”, but if they are truly “contracts of utmost good faith”, each party must act to fulfill obligations to the best of its ability.

The basic obligations of the insured are:

• To provide complete and correct information to the insurer, including all facts relating to any risk known to the insured
• To provide the insurer with any new information of which it becomes aware at any time that may adversely affect the risk
• If a potential loss develops, to take all necessary steps to avoid or minimize the loss
• To pay the premium on those sales that the insured has agreed to offer for insurance
• To not ship to a buyer that the insured knows to be in financial difficulty
• To assist in the recovery of any claims paid by the insurer
• To act and conduct business as if insurance was not in place, that is, the insured mustn’t take unusual risks just because it has insurance

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The Top 10 CFO Challenges in 2012

By Kirk Cheesman, originally published in part, in National Credit Insurance (NCI) News

I recently attended and spoke at the New Zealand CFO Summit in Auckland, New Zealand. In the prelude to the Summit, a survey was taken to rank the top challenges for CFOs in New Zealand in the up-coming year. Number two on that list was "managing risk."

It was stated, "risk is neither a compliance chore nor is it just about managing financial operational risk. It requires CFOs to manage the effects of uncertainty throughout business operations."

In a survey of 180 CFOs, the question was asked, "How are CFOs managing risk in Asia?"

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Underlying Danger: avalanches of political risk can surprise even the most secure foreign investment contracts

By Ron Doyle

I spent two weeks in March 2012 skiing in the Canadian Rocky Mountains, during which time it snowed nearly every day. The new fresh snow was mounded up on every slope. The sights were amazing, as every surface and tree was coated in white. It was hard to believe that anything so beautiful could be so dangerous.  The warnings of high avalanche danger were quickly proven, when several skiers and snowmobilers were caught in avalanches and killed. Apparently, the new spring snow was heavier and had more moisture than the existing snow cover, thus creating a very unstable situation.

When I returned to the office, one colleague reported that during the recent International Credit Insurance and Surety Association meetings, members indicated that more companies were buying Single Buyer policies largely to protect their larger exposures from political risks. Another colleague advised that our clients had experienced non-payment situations on sales covered under Irrevocable Letters of Credit.

The danger of avalanches in the mountains is a very good analogy for the political risk dangers underlying even the most secure of export sales or foreign investment contracts.

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Political Risk Event of the Month: Brazil's efforts at grand reforms

Submitted in part by ICBA Asia, Brazil, India and the USA via the IRC Read & Delete Monthly

Dilma Rousseff, President of Brazil, was elected after campaign promises to eradicate corruption. She assumed office January 1, 2011. So far, she has sacked seven ministers for accepting bribes or kickbacks, including the Head of the Mint, in early 2012 (as reported in beyond brics, FT.com). President Rousseff is sending a message that the status quo must change. But is she going far enough?
 
Critics of the President have two complaints: that Rousseff reacts to scandals on the newsstand but is not a proactive agent of systematic reform, and that many of the disgraced ministers were close to her mentor and predecessor, Lula da Silva. Her ruling coalition is large and fragmented, which makes building momentum behind grand reforms difficult. However, the costs of corruption to the Brazilian economy are real.  President Rousseff must follow through on her promise to end corruption, if she is to deliver on her second pledge to grow the economy and add jobs. As one of her first steps - as described in part in Business Day - Rousseff aims to reduce business taxes.
 
(The Political Risk Event of the Month blog post is a recurring post, on a sporadic basis, at the ICBA blog. ICBA Asia, Brazil, India and the USA, which is International Risk Consultants, Inc. (IRC), has agreed to continue to share these "event" posts with the ICBA blog.)