This information is confidential and was prepared by Mesoamerica solely for the use of our client; it is not to be relied on by any 3rd party without Mesoamerica's prior written consent.

DRAFT

MESOAMERICA

Our Region’s ChallengesWhat We’ve Learned

July 2009Harry Strachan

2

Topics

•Perspectives and Challenges?

•Lessons for Business?

•Lessons for Leadership?

1 - CFR Red.pot

Who “we” are … Mesoamerica …

Our regionOur history

“Core” countriesOffices

Bain & Co. CR MESOAMERICA

• Mesoamerica’s roots (1993-1998)- Bain Costa Rica – Consulting- Mesoamerica Fund 1 (1996-1998)

• Mesoamerica (1998 – present)- Strategy consulting, - Mergers & acquisitions - Private equity- Mesoamerica Foundation

• Offices: San Jose (1998), Bogota (2008)

• 35 Professionals: 13 Nationalities; variety of educational and work backgrounds

4

Topics

•Perspectives and Challenges?- Survey re Global Crisis - Key challenge & CAFTA- $64,000 Question

•Lessons for Business?

•Lessons for Leadership?

1 - CFR Red.pot

The Survey (12/08 – 2/09)

Screnarios & probabilities in U.S. 1• Typical “V” Recession

• Prolonged “U” Recession

• Severe “L” Recession or Depression

Impact of the crisis in Central América2• Worse in Central America

• Better in Central America

Evidence of the crisis in your company3• Yes

• No

Actions taken as a result of the crisis4• Defensive

• Offensive

Leadership in the crisis5• Advice to our governments

• Advice to the International Agencies & other countries

Probable scenarios?

A. Typical Recession

• Recovery by end of 2009

• Dow Jones ↑ >11,000

• Credit available

B. Prolonged recession

• In recession until 2010/11

• Dow Jones @ 8,000 has hit bottom ↑ above 9,000 by end of year

• Crédit available but expensive

C. Severe Recession

• Profound recession > 3 years

• Dow Jones not hit bottom Goes bellow 7,000, doesn’t recover quickly

• Crédit hard to get

49% 16% 13% 22%

Optimistic (>30%)

In middlePessimistic

(>30%)All

39% 65% 42% 57%

12% 19% 45% 21%

21(20%)

72(69%)

12(11%)

105# responses

(Percent)

Historic correlation is a fact …

Ciclo Económico en EE.UU. y América Central(% de desviación sobre la tendencia)

EE.UU.

América Central

-6

-4

-2

0

2

4

6

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Fuente: Estimados BID, Bancos Centrales, Reserva Federal.* Calculado sobre la base de los Indices Mensual de Actividad Económica (IMAE) y el Indice de Producción Industrial de EE.UU. El componente cíclico fue estimado con el f iltro Christiano-Fitzgerald.

Correlación:- Contemporánea: 0.62- Un trimestre rezagado: 0.72

Impact of crisis in Central America?

69% 48% 30% 52%

Optimistic (≥60%)

In middlePessimistic

(≥60%)All

31% 52% 70% 48%

A. Better in C.A. than U.S.

• Region less linked to U.S. China & India new motors of growth

• Region less vulnerable, more diversified economically

• Government reserves high and local banks are healthy.

B. Worse in C.A. than U.S.

• “When the U.S. gets a cold, we get penumonia.”

• Governments don’t have much counter cyclical capacity.

53(54%)

9(10%)

36(36%)

98# responses

(Percent)

Our major challenge – closing the gap

1960 1970 1980 1990 20000

10

20

30

$40K

GDP / CapitaConstant Yr 2000 US$

'60-'00CAGR

1.0%

2.8%

1.7%

$1.7K

$35K

$4.2K

GDP/Capita(2000)

G7

Latin AmericaCentral America

Source: World Development Indicators 2002, The World Bank Group

The economic Gap between Central America and developing countries has increased in the past 40 years …

060324 Briefing for US

Ambassader2

In education and poverty, the gap is significant …

CA LA G7

58%

36%

7%

0

20

40

60%

Poverty levels*

CA LA G7

23%

10%

<1%0

10

20

30%

Illiteracy Rate

* % of households whom income is less than double the cost of basic family needs

Source: World Bank, ECLAC, PNUD. Information to December 2003

'60s '70s '80s '90s

2.5%

4.5%

2.6%3.1%

-2.0%

2.4%1.7%1.6%

-3

0

3

6%

CAGR: Real GDP Growth /Capita Real by Decade

CAG7

The key cause -- lost decades

War, instability

Note: 1979 is included in the 80s decadeSource: World Development Indicators 2002, The World Bank Group

In spite of strong periods of growth, internal conflicts and lack of sustained strategies often destroy much progress …

NotAlwaysOpen

AlwaysOpen

0 20 40 60 80%

1

% of countries with GDP CAGR >3%

11 / 15(73%)

4 / 74(5%)

CAFTA increases the likelihood of sustainable growth …

Percentage of countries with Economic Growth > 3%(89 Countries in Development, 1970-1989)

1 A country is “always open” if it has: a) Non-tariff barriers on less than 40% of trade, b) Average trade tariffs less than 40%, c) Difference between official and black market figures is less than 20% d) non-socialist economic system, and e) Open market in its main exports

Source: Economic Reform and the Process of Global Integration, J.D. Sachs and A. Warner, Harvard University

Tradepolicy

CAFTA contributes to the elements of a strategy for sustained development

Social:• training and

opportunities for development

• investments in education and health

ImpactFTA

CA-US

Economic:• trade and

investment• employment and

salary levels• productivity and

competitiveness• growth and

incomes in equitable manner

• consumer prices• poverty Institutional:

• transparency and improve/ strengthen rule of law

• corruption• political stability

14

$64,000 Question in 2009

1 - CFR Red.pot

Will the current crisis lead to protectionism in the world and populism in the region that undercut CAFTA and the progress of the last two decades and send us into another “lost decade?”

15

Topics

•Perspectives and Challenges?

• Lessons for Business?-Magnitude of the Challenge 1993-Strategies that worked 1993-2008-Tools for the future?

•Lessons for Leadership?

1 - CFR Red.pot

The business challenge in 1993

Costo y Calidad

1982-85 1992

1.0

0.5

2.0

0.0

0.5

1.0

1.5

2.0

Ind

ice

What is the magnitude of change that globalization will require?

Costo0.460.520.50

Calidad2.202.001.79

Fuente: Bain & Company, muestra de compañías globalizadas

17030827-JAS-XCD-INTEL PREEZ6

The formula that worked for companies that met the globalization challenge…

Current Value

PotentialValue

Strategic Focus

i ROIC > WACC

i Strategic position (RMS)

i Sustainable growth

Operating Excellence

i Benchmarking

i Best practices

i Organizational effectiveness

Key to Competitiveness

18030827-JAS-XCD-INTEL PREEZ6

Benchmarking and best practices’ was a very powerful tool for rapid improvement …

Average0.87

Fuente: Bain & Company

Taller 1 Taller 2 Taller 3 Taller 4 Taller 5 Taller 6BenchmarkUSA

1.141.00

0.86 0.79 0.77 0.66

3.04

0

1

2

3

4

Veh

icle

s P

er D

ay

Vehicle repairs per day per mechanic

The focus of our consulting today …

Sustainable and profitable growth

Competitiveness

Organizational Effectiveness

Productivity

A winning business strategy

and a solid business model

Core business’ full potential

Corporate governance

best practices

• Typical projects:- Review of business portfolio

- Evaluation and redesign of strategies and business models

- Business planning and performance monitoring

• Typical projects:- War planning

- Turnarounds

- Benchmarking

• Typical projects:- Full potential analysis:

core business and adjacencies

- Growth strategies

- Strategic due diligence and integration of acquisitions

• Typical projects:- Organizational redesign

- Role of the center

- Family-company relations

Consulting

20030827-JAS-XCD-INTEL PREEZ6

Critical Paths

NON COMPETITIVE

POSITION

i Strategic Alliances

i Acquisitions

i Mergers

i Exit Strategies

In order to achieve leadership, implement best demonstrated practices, and acquire competencies, local companies must often engage in strategic alliances, mergers, or acquisitions

21030827-JAS-XCD-INTEL PREEZ6

Lesson 5: Negotiation Process

Families- Dividends - Succession issues- Local/Nacional Loyalties- Others

Mutlinationals- Enterprise value- Continuity and

professionalism- Multicountry loyalties- Others

It is critical to understand the objectives and interests of the parties in order to determine if there is a common ground to reach a mutually beneficial agreement

ZONE OF MUTUAL BENEFIT

Case A:

Case B: NO MUTUAL BENEFIT

22

An Important Business Question

1 - CFR Red.pot

Where will companies find the “gold” in the future? Superiority in the basics: cost and quality? Innovation? M&A and regional expansions? Financial engineering? What sectors?

23

Topics

• Perspectives and Challenges?

• Lessons for Business?

• Lessons for Leadership?-INCAE 1981 Seminar “Live cases in leadership in chaos”-Participants List of lessons-Personal implications

1 - CFR Red.pot

24

The “Live” Cases

•Some examples:-Automobile Inventory as Managua is taken by the Sandinistas-“Under the gun” pay raises in a maquilador-What to do about the New Office Tower? – Complete, Distressed sale and Miami?-Rural hardware stores in the civil war

1 - CFR Red.pot

Effective leadership in crisis:

•Realism and critical analysis

•Proactive action

•Care for your people

•Energy and optimism

•Audacity

Source: Participants INCAE Seminar 1981, Leadership In Chaos based on live cases

Becoming an effective leader in crisis

Left Brain

Right Brain

Analytic

Intuitive

Pesimistic Optimistic