The international market remains extremely nervous about Ecuador’s liquidity problems, a few days before the end of 2023. This is shown by the country’s risk indicator, which was 2119 points for this Thursday, December 14, and 2141 points on Wednesday. This is the highest rating since September 9, 2020. It rose to 2,852 points then, but was reduced to less than 1,000 points the next day after the end of negotiations on foreign debt bonds.

Now the indicator is rising unstoppably, in the wake of supplier protests due to non-payment and the statements of the president, Daniel Noboa, who assured this Friday in an interview for Reuters which will seek to cut costs by $1,000 million and also hopes to carry out a monetary gold operation that will make a profit for the Central Bank.

President Nobo talks about cutting $1 billion in 2024 and selling some of the monetary gold in reserves

Country risk began to escalate again under Guillermo Lasso’s government, due to the ups and downs of political problems and market fears that a populist government like hers could return to default.

When President Daniel Noboa arrived, it was expected that the indicator could fall, but his first statements that it could fall default, and the initial selection for the Ministry of Economy with little experience increased the risk. The proposed tax reform did not lead to better prospects.

But what has driven country risk lately?

According to Santiago Mosquera, economic analyst and dean of the UDLA business school, what worries the markets the most is the state of the Government’s liquidity.

For Mosquera, it is becoming more obvious in the eyes of investors that the Government is facing a terrible illiquidity and has no source of local market and that the scenario is very bad for accessing international financing.

He also explains that governments usually used the liquidity of the Ecuadorian Social Security Institute (IESS) to finance themselves. However, this would currently be impossible for the Nobo regime. IESS is currently in a significant deficit, since the Government itself has not transferred funds to it and social security will have to be disinvested in order to be able to pay pensions and Christmas 13.

Mosquera assures that at meetings of representatives of private banks it was commented that IESS announced that it will not renew some investments that have already expired, precisely because of illiquidity. Currently, it also does not have the option of giving bonuses to banks. This is done when there are significant excesses, but currently this excess is barely 300 million dollars, he states.

There is no possibility of an imminent agreement with multilateral organizations. President Nobo even said last Friday that he hopes to cut the state budget by $1 billion in 2024, because he believes there is “brutal inefficiency.” However, he added that he will turn to the International Monetary Fund (IMF) only when he reduces that spending range. Noboa also talked about selling part of the monetary gold reserves and thereby making a profit.

For Mosquera, it would apparently be a “good move”, since at the end of the balance sheet, the sale will represent a profit that will not affect the reserves. And that profit would be given to the Ministry of Finance.

In this panorama, Ecuador is placed in a less than honorable third place in the region, after Venezuela and Bolivia, among the countries with the highest country risk. The case of Argentina is different, which normally had a higher country risk than Ecuador.

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

An explanation on that topic, especially comparing the reality of Ecuador and Argentina, which have just changed governments, would be exactly how these leaders solved their economic problems.

Argentina, under Javier Milei, is implementing a program that shows a serious commitment to fiscal discipline and promises a 5 percentage point reduction and zero deficit results at the end of 2024. Mosquera recognizes that this is a measure juice brutal that will generate a very significant economic contraction in the country of the southern cone. In any case, it says that the first half of 2024 will be very difficult for the Argentine economy, but there will be better prospects for the second half. He assures that Milei’s government now has an economy minister who is clear about what needs to be done. This is clearly visible in the markets.

On the other hand, in the case of Ecuador, with President Daniel Nobo, a tax reform has been initiated, which will at best represent an increase in tax revenues of 0.7%.