Country Risk is a crucial index for the Argentine economy, as it affects its access to financing, foreign investments, and the stability of its currency. But how is this indicator calculated? The American bank JP Morgan uses the EMBI (Emerging Markets Bond Index) to measure the difference between the interest rates of a country's bonds and the U.S. Treasury bonds. This differential, known as the spread, reflects the perceived risk of investing in that country.
A high Country Risk has various effects on the Argentine economy. On one hand, it increases financing costs for both the State and companies, forcing them to pay higher interest rates in the external market. Additionally, it discourages foreign investment, which impacts the arrival of crucial capital to boost growth and employment in the country. On the other hand, the perception of risk puts pressure on the Argentine peso, affecting its value and the Central Bank's reserves. Moreover, it complicates debt restructuring, increasing the costs of refinancing and bond issuances.
To reduce its Country Risk, Argentina could implement stable economic policies that generate confidence in international markets. It could also increase its foreign currency reserves to alleviate pressure on the exchange rate, reduce the fiscal deficit to show better management of its public finances, reform the debt system, and thus achieve a sustainable structure over time.
Reducing Country Risk would allow Argentina to improve its access to external financing and regain the confidence of the markets, crucial aspects for stabilizing the economy and promoting sustained development. In summary, this key financial indicator measures the likelihood of a country defaulting on its debt commitments in the international market, being a determining factor for the Argentine economy and its projection on the global stage.
