Declining sentiment toward 13 of the 20 LatAm sovereigns – among them Argentina, Brazil, Chile, Mexico and Venezuela – has negatively affected Latin America’s risk profile in spite of domestic improvements in Peru and Uruguay.
Latin America has shed 0.4 points since January, but with an average score of 45.1, it remains sandwiched between Central and Eastern Europe (on 47.3) and Asia (43.2). All three categories of risk for the region – economic, political and structural – have been downgraded by ECR’s LatAm contributors.
Chile retains its position as the safest LatAm sovereign, with a score of 76.5, placing it 16th in the world, having climbed three places since January. It remains in a class of its own among the emerging markets.
Brazil, with a score of 60.9 – having shed 1.9 points since January – remains the region’s second-safest sovereign, but it has fallen behind Chile in 2012. The two countries are 22 places apart in ECR’s global rankings, with the points-gap widening to 14 points from 12.3 at the start of this year. Brazil’s economic assessment is far less certain than Chile’s, and the survey also reveals the country has deeper structural problems.
Peru and Uruguay have seen improved risk scores this year, with the two countries rising to 47 and 62 respectively in the global rankings. Peru has enjoyed amelioration in all three categories of risk.
Confidence in Uruguay is underpinned by strong fundamentals – the country has decoupled from its export dependency on Argentina, and by diversifying up the value-chain into gourmet food products, in conjunction with a boom in construction and healthy tourism flows, the sovereign continues to record respectable growth rates. Thus, with the added bonus of strong fiscal discipline, Uruguay remains an attractive destination for foreign direct investment, which is boosting corporate investment rates.
And Peru and Uruguay are less exposed to the eurozone debt crisis and contagion from the Spanish financial system than other LatAm sovereigns, with bank-stability scores for both countries upgraded since January. Political risks in both countries have also eased.
In contrast to Peru and Uruguay, the violence, swift impeachment of president Fernando Lugo and subsequent international isolation, mean that Paraguay is the region’s worst performer, with its score falling by 3.1 points to 40.3 (and slipping six places to 87).
Argentina is also proving to be one of the region’s worst performers this year, against the backdrop of the nationalization of state oil company YPF and other unorthodox economic policies, including raising tariffs, rationing foreign currency to protect against capital flight, failing to settle outstanding debts and restricting dollar-denominated property purchases.
Argentina’s points-deficit to Venezuela, the riskiest of LatAm’s main economies, was 2.8 at the beginning of 2012, but has since narrowed to just 0.7. With its descent to 99 in the global rankings, Argentina has dropped into the riskiest of ECR’s five-tier system as ECR scores for all 15 of its sub-factors have been lowered.