Major Issues for Debt Collection in Four Latin American Markets

Collecting a foreign debt in Latin America can be challenging. Periodically, one is faced with major issues which complicate debt collection.

Below are four of Latin America’s biggest markets and major issues that may arise attempting to collect a debt on behalf of a foreign creditor.

Debt Collection in Argentina: Currency Issues

Argentina debt collectionArgentina’s economy has gone through several cycles the last few decades and the country has faced a deep economic crisis. Two of the major issues creditors and debtor have had to deal with are currency devaluation – the value of the Argentinean Peso dropping substantially as against the US Dollar – and foreign currency exchange restrictions as imposed by federal government. These two issues are interrelated and have negatively affected each other, resulting in considerable payment issues for debtors in Argentina, uncollectible claims for foreign creditors, and red flags for global creditor insurers because of negative credit rates.

Debt Collection in Brazil: the Challenge of the Economic Crisis

Brazil debt collectionConsidered one of the most influential emerging markets and part of the so called BRIC nations, Brazil experienced impressive economic growth and a rise in overall prosperity at the beginning of the 21st century. However, it fell into a severe economic crisis in 2014, from which it is currently still recovering. The Brazilian currency, the Real, devaluated as against the US Dollar and several businesses went bankrupt or otherwise have had difficulties paying outstanding invoices to foreign creditors.

Debt Collection in Mexico: Informality and Challenging Legal System

Mexico debt recoveryOne of the most open economies of Latin America, Mexico has passed through the global financial crisis that started in 2008, relatively unharmed. In fact, its economy has been growing for the last few decades and is considered an emerging market with great opportunities for foreign investors and traders. However, the challenges for foreign creditors in Mexico are the level of informality in daily business, as well as it’s malfunctioning legal system. These factors make debt collection in Mexico a challenge from time to time, and legally enforcing a foreign claim impractical and virtually impossible.

Debt Collection in Venezuela: Hyperinflation and Currency Exchange Controls

Venezuela debt collectionVenezuela has unfortunately been hit by one of the most severe economic and monetary crises of the century. Hyperinflation has lead to a collapse of the local currency, the Bolivar. Foreign currency exchange restrictions have made it almost impossible for local businesses to buy US Dollars, Euros or other foreign currencies. In combination with the collapse of the Bolivar, this has made it virtually impossible for local debtors to pay foreign creditors. Venezuela is one of the most difficult nations on earth for debt collection and a foreign debt can in most of the cases, by default and as a rule of thumb, be considered uncollectible and a certain write off.

Looking at respectively Argentina, Brazil, Mexico and Venezuela, we notice that the following are some of the major issues debt collection faces: currency devaluation, foreign currency exchange restrictions, economic crisis, informality, malfunctioning legal system, and hyperinflation. Most of these major issues, through the last decades, have manifested, to a lesser or larger extent, in all the countries mentioned and many other countries in Latin America and will likely continue to affect debt collection in the future.

David Zannoni

If you are a foreign creditor and interested in learning more major issues for debt collection in Latin America, please reach out to Cobroamericas, on Linked-In or follow us on Twitter.

To participate in conversations about debt collection in Latin America please join the Linked-In Group Debt Collection Latin America.

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Legal Proceedings: Enforcing US Judgments in Mexico

140915 Enforcing Foreign Legal Ruling in Mexico 2This article focuses on legal judgments obtained in the US for which enforcement is sought in Mexico. Although the situation is specific there may be similarities with other countries in the region or anywhere else in the world.

I have got the question a couple of times over the last few weeks. Are judgments obtained in the US enforceable in Mexico?

Well, not directly. But yes, if confirmed by a Mexican court, in principle US legal judgments can be enforced and executed in Mexico.

Mexican law provides for Mexican courts to recognize and enforce US judgments in Mexico (based on the North American Free Trade Agreement). However, there is no treaty in place between the US and Mexico as to establish the legal situation of judgments between the two countries. This means that the claimant in that respect fully depends on Mexican law. Mexican courts can recognize US judgments but, legally spoken, they are not obliged to do so.

In order to enforce a US judgment in Mexico the applicable court in the US will have to issue a rogatory letter to the applicable court in the Mexican state (or the Federal District, as applicable) in which debtor resides. The letter must rule out appeal. Also, the debtor must have been personally served with the summon and complaint according to US law. Then the domestication proceedings start, in which the file will need to be translated to Spanish, and then the case is officially filed with the Mexican court. Provided that the Mexican court indeed recognizes the US judgment, all possibilities of enforcements as would otherwise apply to a full Mexican case will apply.

Subsequently, the success of, and decision to proceed to, enforcement and execution of the judgment in Mexico depends heavily on the circumstances: the size of the claim, does debtor have income or assets and will he or she be able to pay; and the location and background of the debtor (which may determine the willingness or not of a bailiff to execute the judgment).

If you are interested in learning more on topics about legal proceedings in international debt collection connect on Linked-In or follow me on Twitter.

To participate in the conversation about debt collection in Latin America please join the Linked-In Group Debt Collection Latin America.