LatAm favouritism highlights America’s attractions – ECR Q2 2013 results

By:
Jeremy Weltman
Published on:

Argentina and Venezuela continue long-term score declines; Brazil also slips, but Mexico, Chile, Ecuador and Uruguay lead the improvement to 60% of LatAm’s 20 countries.

Although some 4.4 points worse off than Asia in early 2010, Latin America has become safer this year in spite of Argentina and Venezuela’s worsening problems, both of which have seen their trend score declines continue, with the former slipping to 117th and the latter to 131st in the global rankings.

The regional score amelioration is all the more remarkable considering Brazil’s attenuated risk profile linked to its economic and social instability problems, which has further undermined Argentina on account of their trading links.

Those issues aside, other integrated economies – principally Chile on a score of 75.2 and comfortably retaining 16th place on the global scoreboard, and Mexico, climbing to 60.1 points and a high of 36th, just five points away from tier-two status – are benefiting from favourable export and financing conditions, relative isolation from Europe’s economic crisis and improving fiscal balances against the backdrop of political stability.

Although Mexico’s strong consumer and business confidence are a factor in its ascent in the rankings, its score has improved more as a result of government stability and the improving regulatory and policy environment.

Christiaan van Laecke, country risk analyst at RBS and an ECR survey participant, says: “In Mexico after the presidential election, there was a strong push for reform and much of that was incorporated into the rating. But now analysts are waiting to see how the energy bill and the opening up of the energy markets will turn out.

“There is more of separation now between the US- and China-focused economies and the economies in between. For example, Colombia and Peru are affected by forecasts for commodity prices and inward foreign direct investment slowing down, and there is a feeling that policymakers don’t quite know what to do at this point – a China slowdown is coming at the worst possible moment for a lot of these countries.”

He adds: “Some of the stronger rated countries are well prepared for the downturn but nobody knows what we will see in China. It’s not so much the actual slowing of external demand but the market reaction that will affect them. How will their currencies fare and what is their reaction to that?

“I don’t think China’s economy slowing to 6% or 7% will really severely impair their current account or fiscal balances in the short-term. The second half of this year will be really key in seeing what is happening in China and whether the negative surprises we see at the moment will be permanent and persist. If they do, a lot of LatAm countries will be in difficulty.”

Mexico’s trend, meanwhile, is in step with Trinidad and Tobago – the Caribbean’s best performer (and safest country) just one place below on a similar score of 60.0, which is benefiting from political stability and oil and gas investment boosting state payments/repatriation flows.

The Bahamas, Barbados and Bermuda, all still safer countries by contrast, have seen large score declines on the back of high debt levels and worsening economic trends (including tourism revenues affecting the Bajan budget).

This article was originally published by ECR. To find out more, register for a free trial at Euromoney Country Risk.