Bolivia’s country risk showed a significant improvement and was located at 1,336 points as of September 18, according to data from Bloomberg. It is an important decrease compared to the more than 2,000 points recorded at the beginning of the year by the emerging market bond index (EMBI), prepared by JPMorgan. The change is attributed to the expectation of a new government after the elections, which generated confidence in international markets.
What is the country risk and why is it relevant?
The country risk measures the perception of investors about the probability that a country in front of difficulties in fulfilling its financial commitments. Includes factors such as Political stability, inflationpublic debt and payment capacity. The higher the country, the higher the interest rate that a State or a company must pay to obtain financing in international markets.
In practical terms, a Increase in country risk makes credit reduces the arrival of foreign investment and increases costs for local businesses They seek external financing. You can also press the exchange rate and inflation, directly affecting consumers and public spending. On the contrary, a reduction in this indicator improves trust and facilitates access to capital, promoting investment projects and dynamizing the economy.
Recovery of Bolivian bonds
The improvement in the indicator was consolidated from the first electoral round of August 17which opened the possibility of a change of economic direction. Since then, Bolivian bonds in international markets show a sustained recovery, which reduced the risk premiums required by investors.
In April, the EMBI had reached 2,240 points, one of the highest levels of the year. In mid -July, the figure had already been reduced to 1,490 points, and with the electoral results further fell, until reaching the current levels. All this facing the Ballory of October 19, where Rodrigo Paz (PDC) and Jorge “Tuto” Quiroga (Free) will compete.
Regional comparison and internal challenges
In the region, Bolivia occupies the third place at risk country, Only behind Venezuela (16,354 points) and Argentina (1,456 points), and above Ecuador (761 points).
However, EMBI improvement does not eliminate the structural challenges of the economy. The country faces interannual inflation of 23.96% to June, shortage of fuels and pressure on fiscal accounts due to the subsidies regime. These factors limit the state’s ability to fully take advantage of relief in international markets.
According to Bloomberg, the markets reacted positively in Bolivia and Ecuador After the electoral results favored candidates with speeches considered “pro market.” In the Bolivian case, the weakening of the MAS was interpreted as a political turn that drives confidence in sovereign bonds and the future payment of the country.
Economic impact of improvement
Country risk drop may have concrete effects:
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Greater foreign investment: The perception of stability encourages capitals for sectors such as energy, mining, agribusiness and infrastructure.
In conclusion, Country risk fall is a positive sign that reflects confidence in a possible change in political and economic course. However, the real challenge will be to translate this financial relief in macroeconomic stability, inflation control and solution to the structural problems that still afflict Bolivia.
