Argentine country-risk hike the greatest of the world

Argentine public sector debt

According to a report disclosed by Datarisk, between the beginning of July and end of August, Argentina was the country posting the highest country-risk increase of the world, suffering a 139 basis points rise to settle at 459 units.

According to the above-mentioned report, this increase would be related to "the idea that Argentine economic situation shows potential instability in the medium term." Among risk factors, loss of fiscal surplus, increasing inflation, hardly-reliable official indexes, industrial slowdown and trade balance drop are included.

While Argentine public spending has grown 55 per cent in August, collection has only expanded 37 per cent with respect to the same month of 2006. This is the antithesis of what happens in Chile. Total revenues have grown 21 per cent on average, while expenditures have just climbed 11 per cent. This has led Chile to touch "record surplus levels."

The most outstanding data of said report are provided below:

Argentine country-risk has increased 139 basis points, the greatest rise among emerging economies. Venezuela follows it, which has suffered a 130-unit hike. Meanwhile, in other Latin American nations, country-risk has risen, though in a considerably lower manner: Brazil, 43 basis points; Peru, 50 basis points; and Mexico, 20 basis points.

A sizeable portion of Argentine public debt continues denominated in foreign currency, which, with fiscal accounts weakening, raises doubts about government's payment capacity.

Late development of Brazilian industry stems from foreign investment strengthening and from strong boost in local consumption, encouraged by improvements in labour market. For its part, it's worth mentioning that development is not homogenous, industry is only flourishing by sectors, since manufacturing exporters still suffer burden of a barely-competitive exchange rate.

Chile has been severely lashed by energy crisis and its Central Bank has been forced to increase interest rates so as to curb inflation. Despite these obstacles, 2007 economy growth seems to be strengthening, closing the year around 6.2 per cent, being investment and private consumption two of the main driving forces.

In a context where an expansive economic cycle seems to be wearing out, Venezuela should take preventive measures so as to curb strengthening of a problem which can be controlled.

Mexico is going through a difficult situation this year due to less expansion and uncertainty about real estate sector of its main trade partner, North America. At the same time, Argentine financial system has been giving warning signs throughout the year: during the first six months of 2007, expired portfolio of trade banking has increased 4.95 per cent with respect to 2006.