Bloomberg Línea — No other Latin American nation carries a country risk as high as Venezuela, although some markets saw risk increase in the first quarter of 2023. Ecuador’s country risk rose 53% between December 31, 2022 and March 31, 2022, and Bolivia’s increased by 175%.
Even so, and despite the dramatic leap in both markets, none of these countries are yet in the same league as Argentina, which has the second-worst country risk after Venezuela.
Conversely, Uruguay, Chile and Panama have the safest sovereign bonds in Latin America and, therefore, the lowest country risk in the region.
Country risk is measured on the basis of the Emerging Markets Bond Indicator (EMBI) and rises or falls as a result of price fluctuations of government-issued bonds. EMBI is calculated by JPMorgan and shows the premium a country must pay if it wants to issue debt, compared to a US Treasury’s risk-free rate.
The countries with the highest country risk in Latin America:
- Venezuela: the country ruled by President Nicolás Maduro closed Q1 with an EMBI (or country risk) of 34,228.93, a staggering value. To illustrate, charts on country risk in Latin America usually exclude Venezuela, because the difference with other countries is such that adding it would break any possible scale.
- Argentina: its EMBI closed Q1 at 2,302 points, slightly above its value at the end of 2022 (2,162). At times during the year, Argentina’s country risk fell considerably, in the heat of bond price improvements, but the situation soon turned around as the shortage of international reserves in the central bank triggered fears of all kinds. Argentine bonds, moreover, have a negative reputation, as the country has defaulted on numerous occasions so far this century and the country restructured its debt in 2020.
- Ecuador closed the first quarter with an EMBI of 1,917 points, up from 1,255 at the beginning of the year. In 2022, Ecuador was consistently below El Salvador in this ranking. However, in early February President Guillermo Lasso had an electoral setback in a referendum on policy and concerns began to be raised. The opposition claims to have the numbers to remove the president in an impeachment trial, which is a very bad sign for investors who fear that Lasso will be replaced by a non-pro-market choice.
- Bolivian country risk grew 175% in the quarter, closing as the nation with the fourth-lowest indicator (1,561). Up until last year, country risk was not a topic of conversation in Bolivia and, in fact, Bolivia also ranked below El Salvador. But in recent weeks investors began to sell Bolivian bonds in a frenzy, due to fears that the Bolivian central bank is running out of reserves.
- Among the countries with an EMBI above 1,000 points, El Salvador is by far the only one that has improved its ratio in 2023. El Salvador closed March with a country risk of 1,521 units, compared to 1,853 at the beginning of the year. In 2022, El Salvador’s EMBI was, for some days, worse than that of Argentina.
What about the two largest economies in the region?
Country risk in Latin America’s two most important economies remained practically unchanged in the first quarter. The EMBI in Brazil closed 2022 with an EMBI of 261 units, while as of March 31 it stood at 254.
In the case of Mexico, the EMBI climbed from 389 to 393.
