Milei’s arrival in Argentina and the problems in Bolivia and Ecuador change the country’s risk ‘rank’ in the region

Javier Milei’s presidential victory in Argentina, the systematic reduction of international reserves in Bolivia and the difficult fiscal situation in Ecuador have changed the “picture” of the country’s risks in the region. Although Venezuela still leads the worst risk in the region with 18,181 points, this country is almost not taken into account anymore, since the indicator leaves it outside of any comparison.

But among other countries there are changes in their positions of the worst country risk indicators. Previously, Argentina was the highest, in second place after Venezuela. Followed by Ecuador in third place. Now Bolivia is second with 2088 points as of December 4, 2023, followed by Ecuador with 2055; and, on the other hand, Argentina dropped to fourth place with 1958 points.

Country risk is an indicator that measures the level of confidence of the market and investors in the possibility of the country fulfilling its debts or not. The higher it is, the more suspicion it creates. Country risk is measured by investment bank JP Morgan.

Neighboring countries have better country risk behavior. IN ranking Among the best indicators are the countries that managed to stabilize their fiscal accounts:

What is happening in the countries with the highest risk?

Bolivia It has been having problems for several months. Fausto Ortiz, an economic analyst and former minister, comments that current Bolivian President Luis Arce has failed to replicate the good governance he had as economy minister of the Andean country.

According to international reports, Bolivia’s country risk ended 2022 at 563 points, which is a reasonable number for the region. However, this year the market began to show great concern over the decline in the net reserves of the Central Bank of Bolivia and this raised the indicator above the 2,000 point mark.

Bloomberg reports that Bolivia is losing international reserves as the government spends heavily to defend its dollar-pegged currency, the Bolivian. In addition, its natural gas revenues, which were in decline, and high budget deficits eventually took their toll. Reserves have fallen from $15 billion in 2014 to $3.5 billion (in February 2023). After that date, another figure was listed in the middle of the year: $3.15 billion. Bolivian bonds maturing in 2028 fell to 53 cents in late March.

On the other hand, in case Argentina, Milei’s plan caused country risk to drop from 2,500 to 1,958 points in a matter of weeks. According to Fausto Ortiz, Milei said he would control spending, not issue more currency and revive the economy. Ortiz believes that Milei will continue to send clear messages when he fully assumes the presidency, and there is a possibility that the country’s risk will be further reduced.

In the meantime, Ecuador continues to be a high country risk. After a slight dip when it was announced that Daniel Noboa had won the snap presidential election on October 15, his first statements spooked the markets.

Ortiz believes that the current Minister of Economy, Juan Carlos Vega, is a slightly better option than the first chosen one, who was Sariha Moya. However, the very change of name generated uncertainty, and also the fact that the current minister did not have the opportunity to be with the previous government during the transition, nor to follow Nobo on his way to markets and investors. Now it is up to Vega to give signs of a clear plan.

Newly elected president of Nobo announces tax reform for December to increase tax revenues and avoid ‘defaults’

Furthermore, he advises not to make the same mistakes as telling the multilaterals to provide funds, because without that he would not be president again, and therefore the debt would not be paid in the following years. Or the Government’s latest statement that salaries for November can be paid with a loan from the National Financial Corporation (CFN). “You have to be careful about the ways you communicate, bad ways are a bad sign,” he says.

This refers to a statement from the Ministry of Economy dated December 1, which announced that, despite cash problems, the Government paid salaries for November through a “temporary liquidity management effort between public sector entities, without affecting its operations, funds that will compensate in in the short term with income and financing alternatives being analyzed.”

Indeed, Ecuador is currently in a difficult fiscal situation marked by a lack of funds, which has even called into question the payment of salaries in the public sector. The government is currently making efforts to approach multilateral organizations and has recognized that country risk prevents it from accessing market financing.

In this sense, Minister Vega himself said that new multilateral financing might be needed. The International Monetary Fund (IMF) recently published a report ex post to the last debt program that culminated in Ecuador and made a number of points about the problems that arose. Among them are the dependence on the price of crude oil, the lack of increase in non-oil resources (taxes) and the failure of the targeted subsidy program. Here is a summary of the IMF report on Ecuador.