Argentina’s country risk score converges with rock-bottom Venezuela


Jeremy Weltman
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Argentina's country risk score is dropping towards that of Venezuela, Latin America's riskiest economy.

Argentina's score decline in the Euromoney Country Risk survey continues, perpetuating a long term trend that has seen the country plunge to 36.1 points - down 1.9 since Q1 2012 and 6.9 points compared to a year ago. The points-gap between Argentina and Venezuela, the riskiest of Latin America’s major economies according to ECR experts, was 3.6 at the beginning of 2012, but has since narrowed to just 0.8.

With its descent to 100 in the global rankings, Argentina has dropped into the lowest of ECR’s five tier system.

All aspects of the ECR’s country risk profile have deteriorated since Q1 2012, including contributors’ scores for the political, economic and structural risk indicators. The only exception was Argentina’s already low score in ECR’s credit rating indicator, which remained constant.

Argentina has seen large declines in its scores for the economic-GNP outlook, bank and currency stability, and government finances since this time last year.

Real GDP growth of 4.2% is predicted for 2012 by the International Monetary Fund (IMF), less than half the pace of last year, but official data cannot be trusted. An investigation by the IMF, noted in its latest, April 2012, World Economic Outlook (page 65) indicates that, based on surveys and anecdotal evidence, the economy is weaker, and inflation higher, than the official statistics claim.

Moreover, the risks of non-payment/non-repatriation, information access/transparency, the country’s institutions and its regulatory/policy environment have all deteriorated to alarmingly low levels.

And no wonder. As reported widely, including in Latin Finance (Argentina Going South), the government’s pursuit of nationalisation (through oil company YPF) and other unorthodox policies – including raising tariffs, rationing foreign currency to protect against capital flight, failing to settle outstanding debts and restricting dollar-denominated property purchases - have increased the risk of expropriation, weakened investor confidence and exacerbated the uncertainty that is weighing on the peso.

As Richard Segal, Director of Emerging Markets at Jefferies states,

“With Buenos Aires running out of money, the (risk) outlook has been bleak for some time, but particularly in the aftermath of YPF.”

This article was originally published by Euromoney Country Risk