Brazil to Launch $1.9B Credit Scheme for Micro Firms, SouSmile Raises $10M Series A, Roadmap for Confronting COVID-19 in Latin America, and More…

Other features stories include: Despegar Lays off 400 Employees as Best Day Acquisition is Called into Question, Argentina’s $70B Debt Negotiations to Enter the Final Act, and #MightyMexMO Campaign Encourages Mexican Residents to Show their Support to Local Businesses and Organizations during COVID-19.

Brazil to Launch $1.9B Credit Scheme for Micro Firms

Brazil will launch a $1.9 billion USD ($10 billion reais) program to support micro businesses with good credit history but whose finances have been hit hard by the economic impact of the coronavirus pandemic, two Economy Ministry sources told Reuters.

The scheme will be targeted at firms with annual revenue of up to 360,000 reais and will be operated by state-owned lender Caixa Economica Federal. Approximately 3 million businesses could be eligible, according to the sources, who spoke on condition of anonymity.

One of the sources said roughly 10 billion reais of financing could be made available to firms that have demonstrated themselves as “good payers” of their income taxes, via the “Simples” tax payment system for small businesses.

The initial idea was that the Treasury would make funds available via public banks, however that would require a proposal drawn up and sent to Congress, which would prolong the process.

Now, the plan is to offer qualifying small companies a credit line equivalent to 30% of two months’ worth of revenue, which according to the sources, would be the calculated amount the business needs “to survive.”

The plan follows the 40 billion reais program announced last week aimed at helping companies with annual revenue of between 360,000 and 10 million reais meet payroll.

As reported by Reuters,

“Brazil’s primary budget deficit this year is approaching 500 billion reais ($96 billion), or 7% of gross domestic product, even before a state aid proposal of up to 222 billion reais to tackle the coronavirus is factored in, the Economy Ministry said on Saturday.”

SouSmile Raises $10M Series A

SouSmile, a Brazilian dental tech startup, raised a $10M Series A from Global Founders Capital, Kaszek Ventures, and Canary.

The dental company develops invisible aligners as a braces alternative. SouSmile currently has five stores in São Paulo and Rio de Janeiro, and seeks to expand the company with this recent round of funding.

As reported by Latam List, the startup uses state of the art technology to assess clients and build their treatment program. The alignment braces are printed from a panoramic X-ray and 3D scan of the client, ensuring precision and accuracy in treatment. SouSmile offers treatment at prices approximately 60% cheaper than similar treatments available on the market. Clients are also given the option to pay in installments, making the treatment more accessible to a wider customer base. Smart aligner technology is currently only at 2% in Brazil (compared to 40% in the US), making the country a promising market for orthodontic startups like SouSmile.

Roadmap for Confronting COVID-19 in Latin America

The coronavirus pandemic is a shock of unprecedented magnitude, uncertain duration, and consequences that- if not properly addressed- could lead to one of the most tragic episodes in the history of Latin America and the Caribbean.

While the crisis requires prompt and decisive action, policy responses in the region have been disproportionate across governments. While some have reacted promptly, making the protection of public health their prime objective, others have unfortunately tended to minimize the risks of the pandemic; misinforming citizens and disregarding both scientific evidence and experts’ advice. Rather than mobilizing all resources at their disposal, some leaders have chosen to play populist and divisive politics in the midst of this tragedy.

As reported by America’s Quarterly,

“In addition to the immense disruption of domestic production, Latin American economies are suffering from falling export volumes and prices, lost income from tourism and remittances, and large capital outflows. The supply shock in a big part of the economy coupled with a broader demand shock could trigger a contractionary spiral.”

To prevent this outcome, bold policies to protect the incomes of individuals and households are crucial. This involves providing cash transfers for those left in a vulnerable position by the crisis, including informal and independent workers who cannot access employment subsidies or unemployment insurance.

Supporting jobs and incomes of the labor force and relief to businesses are also essential processes– to allow them to cope during the period of widespread social distancing, and also to help ensure they recover afterwards.

“Subsidies to help firms pay their wage bill, contingent on the maintenance of employment, protect both companies and workers during the crisis and are crucial for a fast rebound of the economy when conditions normalize. If widespread bankruptcies are not prevented then the next victim of the crisis could be the banking system. At that point the payments system, and in fact the entire economy, would risk collapse” (America’s Quarterly).

Many businesses, particularly small and medium enterprises, will suffer significant income losses for the duration of the crisis. Without additional support, lack of liquidity will eventually become a solvency problem.

According to America’s Quarterly, tax deferrals, loan rollovers and subsidized credit will not be enough. Instead, this crisis calls for unprecedented credit guarantees provided by governments to ensure banks contribute lending, in addition to temporary changes in regulation to promote incentives for credit expansion. Well capitalized and well managed state-owned banks can also play a leading role. Fiscal stimulus will also be required over the recovery phase. Governments must stimulate employment and economic activity without exacerbating health-related risks. Policies will differ across governments, but extraordinary fiscal resources will likely be needed to bolster recovery.

While fiscal requirements are now much larger than during the global financial crisis, policy space in Latin American economies is narrower. Fiscal costs should be compensated with budgetary adjustments in low-priority areas. A commitment by executive and legislative branches to correct the greater resulting fiscal deficit (within a reasonable time period) could mitigate the risk of a credit downgrade now threatening several of our countries.

Latin American leaders should call for international cooperation to confront the crisis. Stronger global coordination among health authorities is needed to improve the capacity to conduct tests, treat and isolate patients, and develop a vaccine and cure; which will be the definitive solution to the COVID-19 pandemic. In the financial space, regulators, credit rating agencies, and accounting standards institutions must adapt their criteria to deal with the adverse systemic circumstances.

The IMF has an essential role to play– in both the short run to address countries’ foreign exchange and fiscal needs, and in the future to continue supporting economies through a crisis with an uncertain duration.

“Latin American governments should call forcefully for a new one trillion issue of the Fund’s Special Drawing Rights (SDRs). And while SDRs are allocated to member countries according to quotas, a non-proportional allocation could be achieved by creating a common pool overseen by the Fund, to expedite fiscal support to governments” (America’s Quarterly).

Major central banks can further help to reduce foreign exchange liquidity tensions. Access should be broadened to swap lines with central banks that issue reserve currencies, which can be done directly, or indirectly through the IMF or the Bank of International Settlements (BIS) as intermediaries of central bank liquidity.

According to America’s Quarterly, Multilateral Development Banks (MDBs) like the World Bank, the Inter-American Development Bank and CAF should double the amount of net lending to the region and tap highly liquid global capital markets to provide further budgetary support for countries, under much reduced conditionality.

The world- and Latin America- cannot afford delayed or inadequate responses. Mutual trust and transparency remain the best guideposts in these uncertain times. The crisis cannot be an excuse to weaken our hard-won democracies, but should instead become an opportunity to strengthen democracy in Latin America, and demonstrate it can deliver for citizens.

Despegar Lays Off 400 Employees as Best Day Acquisition is Called into Question

Argentine Despegar was well-aware that worldwide quarantines would curb its operations. Like many other businesses in the travel industry, Despegar resorted to layoffs as a means to cope.

According to Contxto, last week the company let go of 400 employees distributed among Brazil, Uruguay, and Colombia. Due to labor regulations in Argentina, however, it could not fire staff in that country. Additionally, Despegar’s deal to acquire Mexican platform Best Day is also being reevaluated and may not fall through after all.

Back in January, it was announced that Despegar would be acquiring Mexican Best Day for US$136 million. Since then, the coronavirus pandemic has shocked the industry, and Despegar has been forced to reassess this acquisition.

The company is not dissolving the deal, which is also still awaiting approval from Mexican antitrust authorities. However, Despegar is renegotiating the terms based on an announcement made by the Argentine business on Monday.

Based on these statements, Despegar is discussing with Best Day the valuation of the deal and payment timing. Moreover, there is the possibility the acquisition will not close at at all.

“The Company [Despegar] cannot assure you that it and the sellers will be able to consummate the acquisition of Best Day under the existing terms, under different terms, or at all” (Contxto).

Unlike Peru, Colombia, Argentina, and Chile, the Mexican government has yet to close its borders or implement a mandated quarantine. In Despegar’s native country Argentina, the government initiated mandatory quarantine on March 20, and has recently extended it to April 26.

Argentina is Despegar’s third largest market, although the company may be more concerned with its two correspondingly largest markets: Brazil and Mexico. Both of which are governed by presidents that have been widely criticized for their delays in controlling the spread of COVID-19.

Due to the insufficient number of COVID-19 tests within these countries, many analysts state the actual amount of positive cases may actually be higher. Given their key role as regional leaders and markets, slowdowns in Mexico and Brazil will certainly spill trouble for the ecosystem’s startups as a whole.

Argentina's $70B Debt Negotiations to Enter the Final Act

Argentina’s $70 billion debt negotiations are entering the final act, with bondholders bracing for the worst as the Latin American country readies a restructuring deal already delayed by the coronavirus outbreak, which creditors fear will impose stiff losses.

According to The New York Times, the country- which has been grappling with recession and a mounting debt crisis prior to the coronavirus pandemic- is set to unveil its proposal to international creditors to push back payments on its bonds issued under foreign law.

Argentina’s leaders have warned creditors the country will need substantial relief; adding that any offer will have to be achievable, even as the global pandemic raises the prospect of a deep recession for the country this year.

“The terms could be pretty tough and much tougher than what the market was currently pricing, so we are on the cautious side on Argentina,” said Jean-Charles Sambor, head of emerging market fixed income at BNP Paribas Asset Management (The New York Times).

This is a key step in the financial struggle that began last year amid an economic meltdown sparked by a change in leadership, from conservative former President Mauricio Macri to current center-left Peronist President Alberto Fernandez.

On Tuesday, Argentina filed a $50.5 billion debt registration with the U.S. Securities and Exchange Commission, laying the path for new issuance of foreign-law bonds in what is likely to be a debt swap offer.

However, delayed talks caused by the COVID-19 pandemic - which prompted Argentina to impose a nationwide lockdown and close its borders - has caused bondholders to gripe about a lack of engagement and transparency from the government.

“Argentina is a black box. I don’t know what to expect…Coronavirus will probably be used as an excuse to make it harder for the government to achieve a primary surplus so they will ask for a bigger haircut to make the debt more sustainable. There’s a risk they will use that argument,” one bondholder who declined to be named told Reuters.

Another Argentine bondholder said there were signs that the country was looking to push through a tough deal, even if it only got low participation from creditors.

“Argentina is doing what Argentina always does,” another bondholder stated, in reference to the country’s previous belligerent negotiations with bondholders, especially after a major default in the 2001-02 crisis that dragged on for over a decade.

Argentina, which also has major debts with the International Monetary Fund, has maintained it wants to find “a more amicable path with creditors”, although that has proved far from simple.

The New York Times reports that many of the bonds currently being renegotiated have collective action clauses that require buy-in from holders of up to 75% of the debt in some cases.

Another hedge fund manager said investors had long taken issue with Argentina’s stance, which he said was “designed to squeeze bondholders to the max while being unrealistic to get the country back on track.”

The proposal, which relates only to foreign-law bonds, is far from the end of Argentina’s debt saga. Several of its provinces, including the major region of Buenos Aires around the capital, are currently locked in their own negotiations with creditors.

#MightyMexMO Campaign Encourages Mexican Residents to Show their Support to Local Businesses and Organizations during COVID-19

Mexico always seeks to face challenges head on, even one as monumental as the new coronavirus pandemic.

To keep the community’s spirits up and to help support local businesses, the Mexico Area Chamber of Commerce has created a hashtag for community members to show what they are doing during the unprecedented times of the COVID-19 pandemic. The campaign, started on April 1, encourages the community to share photos, and tag #MightyMexMO.

Photo Courtesy of The Mexico Ledger

                                            Photo Courtesy of The Mexico Ledger

While the chamber was waiting on information from the Federal Small Business Administration to give to members and other community businesses, it wanted to find a practical way to promote community unity and encourage connections and morale, chamber Executive Director Dana Keller said.

“We are here to help provide anything the business community needs…We appreciate our members, but during times like this we are not just here for our members,” she said (The Mexico Ledger).

The chamber wants to keep the Mexico business community stable through its resources and events like MightyMexMO. Event details are posted on Facebook around 6 a.m. CST on Sundays, Wednesdays and Fridays. The chamber and Mexico Jaycees (its junior chamber of commerce) review posts with the MightyMexMo hashtag, and choose a winner  to receive a gift card to a local business.

“We just figured it is something people could have to look forward to and to keep businesses supported,” Keller said.

Depending on how the COVID-19 response progresses, MightyMexMO events may extend into May. The chamber is also considering keeping the Facebook page and hashtag active even after the pandemic situation improves to showcase local businesses and individuals who are doing great things for Mexico, Keller added.

“People are looking for how to make this [pandemic] easier for everyone and so I love to watch our individual businesses and community members find ways to step up,” Keller stated.

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