You are Carolina Ardila Serrano, CFO of Plásticos del Oriente, a packaging manufacturer in Bucaramanga, Colombia. It is 7:30 on Monday, and the central bank has just held its policy rate at 13.25%. On Thursday you present the board with the semester plan: how much to raise prices, how much to invest in the plant, how much of the debt to carry short-term and how much of the dollar exposure to cover.
The situation
The company is 32 years old, with about 480 employees and some 180 industrial customers in food, pharmaceuticals and cosmetics. It sells about COP 60,000 million per semester, and roughly a third of that value is imported resin and inputs paid for in dollars. With credit expensive, its customers buy cautiously; competitors are indebted too, and several raised prices last year.
The backdrop: inflation at 11.4%, far above target; the economy growing at 1.1%; and the exchange rate at 4,650 pesos per dollar, against a budget built on 4,200. The company holds 18,000 million in cash and 42,000 million of debt. Short-term loans cost the central bank's rate plus 4.5 points and reset at every renewal; the legacy long-term loans are fixed at 12.5%, and the banks' money desks let the company shift the mix from one semester to the next. The latest internal valuation puts the company at about 85,000 million. Nobody knows when rates will start to fall: some analysts expect cuts soon, others warn of high rates for longer. Covering the dollar with forward contracts costs money, and over-covering is expensive if the peso strengthens.
Inside, everyone pulls their own way. The commercial director, Mauricio Pabón, forwards you an email from the largest customer asking for a price freeze until year-end. The production director, Germán Quintero, has left the quote for the new injection-moulding machine on your desk: an old plant will lose contracts when demand comes back. The general manager, Jaime Ordóñez Rueda, wants to keep the cash. And treasury proposes raising prices 5%, investing 2,000 million, carrying 40% of the debt short-term and covering 30% of the dollar exposure. The board will review the plan every semester for two years.