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

RIO DE JANEIRO, BRAZIL – What do we mean when we talk about high country risk? Yesterday, the index prepared for Argentina by JP Morgan and watched by international investors reached a new maximum since the debt restructuring – 1,816 basis points. That left the country in the “cursed podium” of Latin American nations.

Except for Venezuela (which currently has a country risk above 30,000 basis points), Argentina is the Latin American country with the numbers much worse than El Salvador, with about 1,200, and Ecuador, with about 800.

Read also: Check out our coverage on Argentina

Far better off in the Latin American table are Uruguay (132), Chile (148), Panama (178), and Peru (189). In other words, countries neighboring Argentina 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 U.S. bank JP Morgan. It compares the yields of each country’s long-term bonds with respect to those of the U.S. 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 capacity to pay its sovereign debt.

Today the country risk is 1816 basis points, so it could place debt at a rate close to 18% -actually, somewhat more, because the rate of U.S. Treasury bonds must be added to it-. On the other hand, Brazil could do the same with a rate of 3%.

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

WHY THE COUNTRY RISK KEEPS RISING

“The country risk has reached a maximum and is showing the lack of confidence 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 in four years is around 85%.

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

“If Argentina does not correct its underlying problems -and taking into account that in 2024 maturities will start to increase a lot- it will have to go to 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 Latin American average is 381-but within Argentina’s imbalances, there could be a “healthier” level for the indicator.

Diego Martínez Burzaco, head of Research at Inviú, explains: “A country risk above 800 basis points is an unacceptable level for the sustainability of any country’s debt because it measures the surcharge paid with respect to a U.S. Treasury bond”.

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”. The indicator should be below that figure to start thinking about a “healthy” level.