Ecuadorian bonds lose 10% of their value, country risk rises to 1,773 points, amid political crisis and cross death

It was hardly known about the announcement of the cross of death, a constitutional measure passed by the President of the Republic, Guillermo Lasso, In the morning of this May 17, the country’s debt bonds had a price drop. At the same time, country risk continued to escalate, because this May 16, it was set at 1,773 points. The day before, on May 15, it had already risen to 1,759 points, while on the 14th it was at 1,692 points.

In this way, the financial markets reacted to the political situation in the country, which includes the intention of the Assembly to impeach President Lasso and the subsequent decision of the President to use the tool death on the cross (dissolution of the Assembly and announcement of the election of the president and members of the assembly).

Ramiro Crespo, President of Analytica, explained that the bonds did indeed experience a sharp drop in price. For example, the 2030 bonds were at 55% of their price dropped to 49%, that is, they lost 6 percentage points, which is equivalent to 10% of their value. He explained that the bonds are at 55 percent because of the recovery they had in recent days, after the exchange of debt for the protection of the Galapagos Reserve, achieved by the Government. However, with this new event, prices fell again.

For Crespo, the market understands that it will be very difficult for Lasso’s government to win elections again in the future and therefore a new government may come in, which will not be too committed to fulfilling international obligations.

In a personal way, Crespo believes that President Lasso is sending a message with the cross of death in the sense that he would rather not continue to rule than to remain trapped by the assembly of PSC and UNES, which did not give in to his initiatives and ultimately did not allow him to rule.

He commented that, in his opinion, the Government had indeed made a number of positive changes for the country, such as, for example, on the macroeconomic level, although he recognized that the social changes were difficult, especially because he had no resources.

In accordance with Jaime Carrera, secretary of the Observatory for Fiscal Policy (OPF), markets will read the current situation in the country as uncertainty continues in Ecuador, and that political instability will continue until 2025, since the government that will be elected in a few more months will only be in place until the end of the mandate that corresponded to President Las.

In this sense, it indicates the country cannot be expected to carry out structural reforms that it badly needs, and in this sense the market detects that Ecuador is a country that cannot reach national agreements or solve its problems. In addition, for Carrera, the period is now coming in which the candidates for the Presidency will demagoguely offer solutions to the citizens. For this reason, he believes that it is logical that bond prices are falling and that the country’s risk is increasing.

Country risk, as measured by JP Morgan, reflects the market’s expectations of the possibility that various countries will default. Ecuador, which has a debt of millions extracted from the government of Rafael Correa, which passes through that of President Lenín Moreno and continues with the resources provided by international organizations in the government of Guillermo Lasso, must begin to write it off from 2024. (I )