What is country risk and what are the results of Latin America?

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The risk in Argentina presented in a day a dramatic increase of 8%, showing the worst performance in this index for the region

What is country risk and what are the results of Latin America?

The country risk, calculated by the financial company JP Morgan Chase, is the indicator of the risks with respect to a country's investments, showing the perception of the level of danger of a country's public debt for foreign investors.

Leer en español: ¿Qué es el riesgo país y cuáles son los resultados de Latinoamérica?

This figure is calculated taking into account the difference between the interest that each country pays when issuing public debt and comparing them with the interest paid by the Federal Reserve of the United States. Likewise, according to the BBC, this indicator allows us to predict the possibility that an economy will default or stop paying its debts.

Last month the latest data regarding the country risk were revealed. The most surprising figure in the region was Argentina, where the risk reached 945 points, registering an increase of more than 8% with respect to the previous year, a rise that occurred in the course of a day and generated a new fall of the Argentine peso that this time lost 52% of its value.

According to President Mauricio Macri, the increase in country risk can be explained because "it rises because in the world there is fear that Argentines want to go back", since the country is six months away from its presidential elections in which Macri seeks re-election, while the opposition is mainly represented by former president Cristina Fernández de Kirchner. This is one of the factors generating tension in the markets.

Another cause of tension in the Argentine markets is the inability that Macri has demonstrated to fulfill what was his greatest promise in the campaign, namely, to resolve the economic imbalance inherited from the previous government.

Also read: Will the fourth IMF disbursement reach Argentina?

A high number of country risk makes it difficult for a State to access loans, which for Argentina must be worrisome because at this moment it only has the IMF as a lender. In addition, a high-risk rating will restrict the ability of Argentine private companies to obtain financing abroad. That is to say, any increase in country risk, and especially one of the size of Argentina, has negative impacts beyond public finances.

The results across the region

Peru, for its part, recorded the lowest risk in the region this year with 123 points, as reported by the Central Reserve Bank (BCR) and the Center for Latin American Studies. According to the BCR, the indicator for this country represents only a quarter of the region's average, which closed on April 3 of this year at 480 points.

The second lowest indicator was that of 126 points reported by Chile, a country that for years has presented a low country risk for the region. Brazil, the largest economy in the region, recorded a country risk of 241 points, while Mexico, another developing economy presented 291 risk points, Bolivia 249 and Ecuador 553.

According to the portal ámnito.com, the current month the indicator of the different countries of the region behaves as follows: Argentina 903 points, Brazil 253, Ecuador 584, Peru 109, Mexico 205, Colombia 190, Panama 131, Uruguay 178 and Venezuela, due to the complex political situation that is going on, registers 5647 points of irrigation. By comparison, European countries such as Croatia and Poland register risk points of 84 and 42 respectively.

LatinAmerican Post | Sofía Carreño

Translated from "¿Qué es el riesgo país y cuáles son los resultados de Latinoamérica?"

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