Chilean companies have known how to be among the main investors in Argentina, but in recent years led the exodus of companies who left the country. They’ve gone away Arauco Park, The Air company Latam has left the cabotage business, falabella closed and masses he sold his forest assets.
But, according to the Chilean newspaper La Tercerathose who are left are living “a real nightmare” in an attempt to record the sales and results of its Argentine subsidiaries in its financial statements.
They have two problems: on the one hand, according to international accounting standards, Argentina is considered a country with hyperinflation. On the other, the gap between the official dollar and the MEP The stock dollar also drastically changes the value that Chilean companies can assign to their subsidiaries.
“On July 1, 2018 -just five years ago-, the International Accounting Standards Board (IASB) declared Argentina’s economy as hyperinflationary. This category is captured by countries that exceed 100% inflation over a three-year period “, a record that has been broken to this day. In 2022 specifically, inflation in that market was 94.8% and annualized to April is 108%, the highest in three decades,” he says. Third.
This situation means that they have to rewrite the balance sheets of their Argentine subsidiaries. They have to adjust the cash flow statement for inflation and then restate the balances at the cutoff date. But this is done with assets and liabilities, not sales or results, which creates distortions.
Among the companies that suffer from this situation are Andean Bottling Company, CMPC, various wineries, such as Trivento or Finca la Celia and Bodega San Juan, CCU and Cencosud.
“THE hyperinflation is the least of the problemsbecause in the end it is an accounting mechanic, which restates everything in the currency of the purchasing power of the closing, but it is in the same Argentine currency,” says Sergio Tubio, partner of PwC Chile, according to the newspaper.
“The greatest difficulty -he adds- comes in the second phase: adjust these results in local currency to the currency in which the results are consolidated: in the case of most Chilean companies, by the weight”.
To convert results from the Argentine peso to the Chilean peso, the accounting regulation stipulates that it is necessary to use the countries official exchange rate. The problem is that in Argentina the official wholesale dollar (to which hardly anyone has access) is $235, versus blue, which is double that ($493) or the MEP, which is worth $460, and according to La Tercera, are the ones that “are more consistent with economic reality”.
“This is a concern that is being discussed more every day in the listings. It’s very common for the topic to come up, there are even directors who are worried why They are aware that they are signing and approving a budget that complies with the rules, but where what they show is not so real”, says Tubio.
The operation to which the Argentines are accustomed (think of the MEPs or the blue dollars because they are the only ones that can be accessed) leaves the Chileans dismayed. “The problem is that the official exchange rate does not reflect economic reality. So I say I have one million Argentine pesos and I divide it by 100 pesos when in reality if I want to bring the money back I should divide it by 200, in half, and receive half,” says Tubio.
And he adds: “This is the effect they suffer today, without any solution, companies incorporating Argentine companies in Chile”.
Possible changes to the legislation
As mentioned by Tubio, the IASB (which regulates global accounting standards) is about to issue an amendment to the legislation that aims to stop using the observed dollar, and that these are the exchange rates actually used by companies to make the conversion.
“According to accounting standards, nothing can be done until this project is approved. In the meantime, what a lot of analysts do is say, ‘let’s see how much of Argentina is included in this budget’… Well, they divide that by two and calculate the effect,” said a PwC analyst. Third.
Charles Arterburn is a seasoned business journalist for News Rebeat, where he provides comprehensive coverage of the latest trends and developments in the world of finance and economics.