Country risk: Argentina tops the ranking among 15 Latin American nations

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What are we talking about when we talk about high country risk? Yesterday, the index prepared by JP Morgan that international investors look at it hit a new high since the debt restructuring and reached 1,816 basis points. That left it in the “Damn podium” of the Latin American nations.

saved by Venezuela (which currently has a country risk of more than 30,000 basis points), Argentina is the Latin American country with the worst numbers in this sense. After its more than 1800 points are El Salvador, with about 1200, and Ecuador, with about 800.

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Far below the Latin American table are Uruguay (132), Chile (148), Panama (178) and Peru (189). In other words, there are neighboring countries of Argentina that have a country risk up to 13 times lower.

What is country risk and why does it matter?

Country risk is an index prepared by the US bank JP Morgan. Compare the yields of the long-term bonds of each country with those of the United States Treasury, considered the least risky in the world.

Unofficially, it is a political and economic thermometer that measures the confidence that markets have in a given government, and more specifically, in its ability to pay its sovereign debt.

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Today the country risk is 1816 basis points, so it could place debt at a rate close to 18% – actually, a bit more, because you have to add the US Treasury bond rate to it. Instead, Brazil could do the same with a 3% rate.

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This means that today Argentina is “out of the voluntary debt market”, since taking debt in international markets would imply too high a cost.

Why the country risk does not stop rising

“The country risk hit a maximum and it is showing the distrust generated by the Government regarding the next debt maturities ”, explains Pedro Siaba Serrate, from PPI. The finance specialist assures that today the probability that Argentina will have a restructuring again in four years is close to 85%.

“From the beginning of the listing of the new debt securities we have been waiting for a rational plan of reforms and fiscal consolidation that does not arrive. The liquidity window that had been gained with the restructuring was running out ”, he explains.

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“If Argentina does not correct the underlying problems – and taking into account that in 2024 maturities begin to rise a lot – it will have to go on the market again, which today seems very unlikely”, He concludes.

What is a “healthy” level of country risk?

Of course, the rest of the Latin American countries give the guideline of how high the Argentine country risk is -and even the average Latino right now gives 381-, but within the imbalances of Argentina there could be a “healthier” level for the indicator.

This is how Diego Martínez Burzaco explains it, head of Research from Inviú: “A country risk above 800 basis points is an unacceptable level for the sustainability of the debt of any country, because it measures the surcharge that is paid on a US Treasury bond ”.

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In that sense, if Argentina had a country risk of 800 basis points it would be paying 9.5% for the placement of a bond, says Martínez Burzaco, and that is a rate “that is not sustainable.” To start thinking about a “healthy” level, then, the indicator should be below that figure.

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