Latin American Country Risk: A Comprehensive Overview of 2024
The landscape of country risk in Latin America has undergone significant changes throughout 2024. Uruguay and Chile continue to lead as the safest investment destinations in the region.
Argentina has made remarkable progress, now surpassing Ecuador in terms of perceived risk. These developments reflect the dynamic nature of economic and political factors influencing investor confidence across Latin America.
The Emerging Markets Bond Index (EMBI), developed by JPMorgan, serves as the primary measure of country risk in the region. This index calculates the spread between emerging market bond yields and U.S. Treasury bond yields.
A wider spread indicates higher perceived risk, as investors demand greater compensation for investing in emerging markets compared to safer options like the United States.
Argentina started 2024 with an EMBI of 1,907 points but improved to 1,044 points by October 15. This substantial reduction can be attributed to the pro-market policies implemented by President Javier Milei‘s government.
The administration’s focus on fiscal consolidation during its first year has also contributed to this positive trend. Despite this progress, Argentina’s bonds remain among the most penalized globally in absolute terms.
Ecuador has also seen a notable improvement, with its country risk decreasing from 2,005 points at the end of 2023 to 1,207 points by October 15, 2024. President Daniel Noboa’s market-friendly approach has been well-received by investors.
However, both Argentina and Ecuador still have EMBI scores significantly higher than the global emerging markets average of 313 points. Venezuela continues to hold the unenviable position of having the highest risk in the region.
Latin American Country Risk Overview
Its EMBI stands at a staggering 20,700 points, a situation unlikely to change under Nicolás Maduro’s regime. Bolivia follows as the second-riskiest country in Latin America, with an EMBI of 1,801 points.
Brazil, Latin America’s largest economy, closed on October 15 with a country risk of 202 points. This figure remains relatively stable compared to the end of 2023 when it stood at 200 points.
Mexico, the region’s second-largest economy, has seen an improvement in its country risk. Its EMBI decreased from 340 points at the end of 2023 to 305 points by October 15, 2024.
Uruguay leads the region as the safest investment destination with an EMBI of 92 points. Chile follows closely with 117 points, while Paraguay and Peru also demonstrate low risk with 155 and 158 points, respectively.
These countries’ stable economic policies and sound fiscal management have contributed to their favorable risk assessments.
Other Latin American countries present a mixed picture. Guatemala (198 points), the Dominican Republic (194 points), and Costa Rica (210 points) show moderate risk levels.
Panama (242 points), Colombia (309 points), and Honduras (398 points) face higher perceived risks but still perform better than the region’s most challenged economies.
Here’s the current ranking of Latin American countries based on their EMBI scores, from lowest to highest risk:
- Uruguay: 92 points (very low sovereign risk)
- Chile: 117 points (very low sovereign risk)
- Paraguay: 155 points (low sovereign risk)
- Peru: 158 points (low sovereign risk)
- Guatemala: 198 points (moderate risk)
- Brazil: 202 points (moderate risk)
- Costa Rica: 210 points (moderate risk)
- Panama: 242 points (moderate risk)
- Mexico: 305 points (moderate risk)
- Colombia: 309 points (moderate risk)
- Honduras: 398 points (high risk)
- Argentina: 1,044 points (high risk)
- Ecuador: 1,207 points (high risk)
- Bolivia: 1,801 points (very high risk)
- Venezuela: 20,700 points (extremely high risk)
El Salvador has made significant strides in reducing its sovereign risk. Once on par with Ecuador and Argentina, it now boasts less than half their risk levels.
This improvement allowed El Salvador to successfully issue international bonds in 2024, marking a notable achievement for the country.
The evolving country risk landscape in Latin America reflects the region’s complex economic and political dynamics.
While some countries have made substantial progress, others continue to face challenges. Investors must carefully consider these factors when making decisions in the Latin American market.
As the region navigates through economic reforms, political changes, and global market pressures, the country’s risk rankings will likely continue to fluctuate in the coming years.
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