The country risk of Ecuador was again above 2000 points on Tuesday, January 9, 2024. The indicator stood at 2039, that is, it increased by 82 points between January 8 and 9, hand in hand with the recent violent events. These days, Ecuador has experienced prison riots, a takeover of the media by violent groups, the declaration of a state of emergency, the recognition of an internal war, among others.

To Alberto Acosta, Editor-in-Chief Weekly analysis, the issue of insecurity, violence and drug trafficking can affect, albeit indirectly, a country’s risk. He explains that since country risk is a thermometer of a country’s ability to honor its obligations, it is not directly related to security. On the other hand, it is related to economic decisions and measures taken by the Government to improve the stability of public finances.

Apart from announcements about reducing spending by one billion dollars or optimizing public companies, there are no concrete measures on this topic.

In any case, he clarifies that since the Government is currently focused on solving the security issue, the economic issue will certainly be on the back burner, which can generate uncertainty in the markets. In addition, insecurity that turns into fear also forces citizens to refrain from spending and creates an unattractive environment for investment.

This will obviously deepen the economic crisis, which was already affected by power outages this year.

Ecuador’s country risk peaked on December 13 at 2,141 points, according to data released by the Central Bank of Ecuador (BCE). This indicator has remained above 2000 points since November 20th and only last Thursday and Friday it fell to 1971 and 1935 before rising again on Monday, January 8th. That day it was 1,957 points, which is the latest available data from the ECB. However, there is updated data on the Invenómica portal that shows that on January 9, Ecuador had a country risk of 2,039 points.

According to Acosta Burneo, the security problem has no simple solution, and it will certainly take several years to register a change. The problem, according to Acosta, is that the country, although it is not a producer, has been taken over from the drug trade in the activity of transporting these illegal goods.

Therefore, to fight against this illicit production activity, the perspective of war is not enough, but it is important to cut off the possibilities that make it competitive. For example, set up a system of remote scanners to monitor the departure of goods through ports. Likewise, activate laws that discourage illicit enrichment, such as the Asset Forfeiture Act. He explains that it will not be an easy process, because the mafias will not want to leave their “job” easily, so they will fight.

On the other hand, Ramiro Crespo, president of Analytica Securities, believes that the actions taken by president Daniel Noboa are on the right track. A state of emergency was declared, and criminal groups were declared military targets. It is important for Crespo that it is recognized that we are in an internal war and he believes that when measures are taken against this enemy, peace can be restored. In any case, he explained that Ecuador’s 2030 bonds are currently yielding 30% and 2035 at 20%. This would mean that the market is considering that there could be a restructuring in the 2030s, but that by 2035 the situation would improve. The higher the performance, the higher the risk. Crespo believes that the market is still examining President Noboa’s actions and believes that he is only at the beginning.