Ecuador registered this September 27 a country risk of 1,726 points, according to the Central Bank of Ecuador (BCE). This is the highest rate during this government, which started with 714 points on May 24, 2021. And that you have seen how this indicator that measures the confidence of debt holders that Ecuador will honor its debts in the future has been growing in an important way.
The current indicator is even higher than the high risk that was registered before the elections when the markets feared a possible victory of Correismo in the country. At that time the index reached approximately 1,169 points. But then it went down to 824 on April 12, after knowing the results of the electoral contest in favor of a more orthodox government and more orderly in its public finances.
So in a year and four months of government, this indicator has risen more than 1,000 points. During this period, several moments have been generated that have contributed to this result.
The first important rise of this indicator It happened last June, when seeing that the protests carried out by Conaie, which asked for greater subsidies, spread and took on very worrying overtones of violence, it rose to 1,365 points. Thus, the advantage that had been gained with the arrival of the government of Guillermo Lasso was already lost.
The index continued to rise when, instead, it was seen that the requests from the dialogue tables they generated higher expenses for the treasury and affected the fiscal balance.
To the On August 1, another problem that could have pushed the index up were the comments that Ecuador would be in trouble with the oil company Perenco, due to a request to freeze assets and accounts that the company would have made against Ecuador. In the end, the issue was never confirmed, but it is a concern that remains.
Now the last climb seems be a kind of accumulation of problems that have to do with economic problems and politicians, external as the price of crude and internal as the lack of governability. So too, the change in investor preferences.
For Jaime Carrera, Executive Secretary of the Fiscal Policy Observatory (OPF), There are several factors that seem to unstoppably raise country risk. The first is that the markets become aware of a possible fiscal unsustainability. Ecuador will have problems financing the deficit that is growing. In addition, you see the crude oil price volatility that have been falling in recent days; additionally there is uncertainty about the possibilities of growth of the economy.
But in addition, says Carrera, there is an instability politics in which there is little chance that the Assembly can adequately respond to the needs of the country. The results of the dialogue tables look poor and the threats of the indigenous sector if their requests are not met. The fragility of social security It is another issue that generates instability. In addition, there are problems of insecurity and drug trafficking.
For its part, Santiago Mosquera, an economic analyst, explains that one of the main reasons for the behavior of this country risk and the fall in prices of Ecuadorian paper it’s a change in investors’ portfolios. These they are seeking to get rid of the papers of emerging countries in general and take their investments to countries that are safer, but have improved their attractiveness. It shows that, for example, the US bond is already at 4%, therefore, for investors these developed countries become more attractive and rather put aside investments in emerging countries. Mosquera considers that there has been no further deterioration of the country. “I don’t think that Ecuador is being punished especially, but being a country that has high investments in bonds, then it is a country that is affected by this overexposure.”
Mosquera emphasizes, however, that in June there was a significant rise in risk, due to the political noise caused by the indigenous protests, and from which it has not been possible to recover.
Meanwhilefor Alberto Acosta Burneo, editor of Weekly Analysis, Behind the increase in country risk is the change in the international environment. He says that the Federal Reserve raised the interest rate and everything indicates that it will continue to raise it sharply in the coming months. Additionally, the strength of the dollar against other currencies also causes the price of crude oil to fall and an increasingly clear risk of recession is perceived in the industrialized world.
In this way, for Ecuador, the low price of crude oil and an international environment where financing rises significantly deteriorate the outlook, since the country It depends on oil and foreign debt. He says that with country risk, in practice, the capital market is closed to Ecuador.
According to Carrera, this problem is not easy to solve. “Ecuador’s main problem is not understanding its problems,” it states. He assures that as long as people do not understand, for example, that this country risk indicator is really moving, a solution will not be sought. In this sense, he says that Ecuador should seek a national agreement and a general pedagogy that helps understand the reality of the country and what needs to be done to progress. And that for this an important sacrifice is necessary.
In this sense, he points out, what the country requires is fiscal stability. And this means having more income. However, various economic and social groups say no to more taxes. need to spend less in subsidies, but social groups ask rather to raise subsidies. Ecuador needs higher investment, but the groups say no to investments. This reality is what the markets are perceiving and therefore does not improve the country risk. (YO)