Buenos Aires — Both Argentina and Ecuador restructured their debts with private creditors in 2020, during the coronavirus lockdowns, although they did it in very different ways: while Ecuadorian President Guillermo Lasso’s administration took three months and did so after a previous agreement with the International Monetary Fund (IMF), Argentine President Alberto Fernández’s team took more than twice as long and without a previous deal with the IMF.
This difference caused both restructurings to have divergent paths: as an example, while Argentina closed 2022 with a country risk of 2,162 units, Ecuador closed at 1,255 basis points.
However, the political crisis faced by Lasso in Ecuador - having last week dissolved Congress and called elections for executive and legislative positions, anticipating his impeachment - with severely damaged sovereign bonds, gives Ecuador a country risk of 1,857 points (against Argentina’s 2,596).
At this time, both states have the second- and third-worst country risk in Latin America, with the top spot occupied by Nicolás Maduro’s Venezuela (35,587.91 units).
Argentine consulting firm Quantum Finanzas has prepared a study on how both debt restructurings evolved:
Currently, the average price of Ecuador’s sovereign debt in dollars is 40/100, while Argentina’s is 26.5/100 (global bonds).
“The recent sharp correction in the price of Ecuador’s (from nearly 60/100 in January) can, in part, be associated with general asset price movements in the region following last year’s fourth-quarter rally, but also with political tensions,” the Quantum report notes.
According to Quantum, the upside of Argentina’s debt prices in a scenario of relative normalization is clearly higher - even considering a future restructuring, entry prices would more than compensate for it - than that of Ecuadorian bonds”.
The differences between Argentina and Ecuador
Quantum’s report highlights that Ecuador’s economy is “stable” and has been dollarized since 2000, and that the country has maintained positive growth rates in recent years, although the political crisis has been escalating.
“The outcome of the political crisis anticipates greater strength and dominance of the line of former president Rafael Correa,” the report adds.
“In Argentina, on the other hand, the economic crisis has been manifesting itself in one form or another for some time, and was practically constant in the period we are considering. This leads to political tensions, which, however, are contained within a general institutional framework that maintains republican forms and practices, without interruptions,” according to Quantum.
Quantum Finanzas maintains that Ecuador’s economic indicators are “substantially better” than those of Argentina, in terms of inflation, fiscal balance and public debt, although it clarifies that “the question is whether dollarization and its rigidity in terms of economic policy decisions, beyond the fact that it allowed it to maintain stability for many years in Ecuador and that, in general, the economy shows better indicators than Argentina’s, is more advantageous to achieve a sustained growth that allows the reduction of the costs of indebtedness”.
This doubt raised by Quantum Finanzas is due to the fact that the Ecuadorian economy is dollarized, and is usually the model used as an example by those who want to dollarize in Argentina.
“Both countries face political difficulties that impact their economies, and in Ecuador even with a history of tensions and greater fragility,” the report states.