The downgrade in country risk that occurred this week causes Ecuador to fall one place in the ranking countries in the region with the worst ratings and now ranks fourth.

Previously, the three most risky countries were Venezuela, Argentina and Ecuador. But the coming to power of Javier Milei in Argentina and the economic problems in Bolivia and Ecuador changed that ranking in the region. And at the beginning of December 2023, Venezuela (18,181 points), Bolivia (2,088), Ecuador (2,055) and Argentina (1,958) were rated worst, respectively.

Why is the risk of the country of Ecuador lower?

Since January 9, 2023, when Ecuador experienced a violent day that saw President Daniel Noboa declare an internal armed conflict due to drug crime, the country’s risk has dropped by 160 points. For Santiago García Álvarez, a professor at the Central University, this is because the Government has begun to show some consistency with the approval of the Law of Economic Efficiency, which generates certain tax revenues.

He also believes that leaving the foreign exchange outflow (ISD) at 3.50%, and even the very announcement of the intention to take a structural measure such as an increase in the value added tax (VAT), could have had an impact. % to 15%, in another urgent law that is currently being processed in the National Assembly, which aims to raise funds to deal with the security, social and economic situation. These measures create greater market credibility and confidence that they will be able to cover their international debts.

García recalls that, for example, when former President Guillermo Lasso reduced the ISD, the rating agency considered the measure a “shot in the foot.”

In any case, he believes that this indicator will not continue to fall, because the situation of liquidity and fiscal deficit is really complex. Furthermore, Ecuador maintains an image of vulnerability to organized crime.

He also believes that if the VAT increase is approved, the country’s risk of Ecuador would be further reduced, although he believes that this measure should be temporary. Furthermore, the Government must understand that with the current weak economy, it would not be advisable to apply a “big package” to the citizens, such as, in addition to the increase in VAT, the revision of fuel prices.

As for the debt, he suggests that the country start renegotiations on the multilateral debt, starting with the agreement default This would cause great damage to the country.