Ecuador’s country risk soars: how high is it and why?

At the beginning of 2023, Ecuador had a country risk of around 1,245 points and was the fourth country in Latin America with the worst indicator.

However, in these almost three months, the value grew by 57% (at the close of March 17, it had reached 1,950 points), and Ecuador replaced El Salvador as the third worst-placed country after Venezuela and Argentina.

The Emerging Markets Bonds Index (EMBI) is the indicator created by the US bank JP Morgan to measure country risk and allows to know the additional that investors demand to hold the nation’s debt in dollars over comparable US Treasury bonds.

The Ecuadorian bond maturing in 2030 started the year at US$64.37 and reached highs of US$73.09 this year, but currently costs only US$47.01.

WHY IS ECUADOR’S COUNTRY RISK RISING?

In the last year and a half, Ecuadorian bonds have been showing a much better performance than Argentine bonds, the other country that restructured its debt in 2020.

However, bonds began to plummet, and consequently, the country’s risk or EMBI soared after the president, Guillermo Lasso, lost the February referendum.

The fall in oil prices worsened the situation recently, as it is a fundamental commodity for the Ecuadorian economy.

According to the newspaper Primicias, oil prices have fallen 13% since last week amid the financial turmoil in the United States after the closure of Silicon Valley Bank and Signature Bank.

There is also the possibility that last Saturday’s 6.5 earthquake may increase investors’ uneasiness concerning Ecuador due to the impact it could have on oil production.

With information from Bloomberg