Country risk affects in at least five farms in the region. Economic mismanagement, political instability and external problems such as the drop in crude oil prices and the devastation following the collapse of banks such as Silicon Valley and Signature Bank create problems in Venezuela, Argentina, Ecuador, El Salvador and Bolivia.
In case of Argentina, Ecuador and Bolivia, This indicator, which measures the market’s perception of the ability of these countries to meet their external debt obligations, has grown significantly in the last year.
So, for example, if you look at the numbers, the indicator of On March 18, 2022, Ecuador was at 758 points, but on March 16 this year, it recorded 1,890 points. More than 1000 points difference, which means 10% more in the rates that Ecuador would have to pay, in case of going to the market for financing without consent. Thus, for example, with 1890 points, Ecuador has to pay an interest rate of 18.9 percent, but 4.5 percent of the reserve rate is added to that percentage, so the rate would exceed 20 percentage points.
For Jaime Carrera, executive secretary of the Observatory for Fiscal Policy (OPF), political instability, the drop in the price of crude oil and problems in fiscal accounts are factors that raise this indicator in Ecuador. These days, the Parliament is calling for the impeachment of the Government, in addition, the price of crude oil has fallen below what was foreseen in the national budget due to the effects of the financial crisis, which is throwing up the prices goods down.
According to the latest Petroecuador report, the national theoretical price of crude oil at On March 15, it was 56.4 dollars per barrel, while the pro forma forecast was 64.8 dollars per barrel. Oil revenues have reached $300 million this year, when calculated to adjust to $3,000 million throughout the year. Carrera assures that tax collection behavior is lower than last year.
The situation is different, he says, for example, in Peru, which, despite the problems of political instability, has solid fiscal foundations and that is why the country’s risk is not increasing. As of March 16 this year, Peru registered a risk of 204 points.
For Carrera, it is important that citizens and politicians understand that instability destroys public accounts, increases risk, and this in turn means flight from investments and pushes the country into chaos.
About the topic In his latest economic analysis, Cordes believes that dark clouds are hanging over the national economy. He reminded that in November 2022, parliamentarians irresponsibly asked the Government to increase the price of crude oil calculated in the pro forma. “Besides revealing the irresponsibility and fiscal populism that unfortunately characterizes many legislators, a new drop in the price of oil – this time linked to the financial nervousness created by, above all, the bankruptcy of Silicon Valley Bank and some regional banks in the USA. , and today deepened by the Credit Suisse crisis – implies a complex panorama for Ecuador’s fiscal accounts,” says the entity for economic studies.
In addition, he indicated that to compensate for the drop in the price of crude oil, oil production should be increased, but this is not happening either. Finally, the article points out that it is important for political leaders to keep this reality in mind so they don’t push for more spending or tax cuts.
In case of Bolivia has also seen a fairly high increase in risk. While on March 18, 2022, the indicator was at 484 points, as of March 16, 2023, it was 1,036. According to Carrera, this is mainly due to poor economic management. For example, the reserves in this country were 13 billion dollars and now they are 3 billion dollars. In Bolivia, both the fiscal deficit and spending have risen sharply, and pension funds are now being used. They were private, run by private managers, but they went public and were forced to buy some $7,000 million worth of government debt.
In the case of Argentina, the country risk indicator it increased from 1789 points to 2322 in the same one-year period. The recent strong growth is mainly due to the problems noted with international banks. It is so in the news reported by various media in that country Argentine bonds recorded an average drop of 5% in reaction to investment banks Silicon Valley and Signature Bank in the United States, while ADRs, shares of Argentine companies listed on the New York Stock Exchange, recorded a drop of 4%. The indicator, experts from that country explain, means that the country should pay an excess of 24.38 percent in dollars above the 4.50 percent US rate, according to the latest increase set by the Federal Reserve of the Associated States.
In the meantime, The situation of Venezuela and its country risk is above all forecasts, since it has an index of 35.941, although this astronomical number is slightly lower than the one it recorded a year ago, which was 38,458. Finally, El Salvador maintained a high indicator above 1,600 points, year, hand in hand with President Nayib Bukele’s policies, among other bitcoin issues.
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