After hitting a low in almost eight years at the end of January, the country risk index rebounded in recent days and was once again above 500 basis points, driven by international volatility that produced setbacks in most emerging markets.
For analysts, reducing the indicator below 400 units, one of the objectives of the economic team, will require greater accumulation of reserves and sustainability of the payment of external debt.
The indicator developed by JP Morgan Chase is closely followed by the markets to evaluate the possibility that a government will not meet its financial commitments.This variable arises from comparing the profitability of local sovereign bonds against United States Treasury bonds of similar term, considered risk-free.
A wide gap between the two reflects greater distrust about the country’s stability and anticipates difficulties in accessing external financing under advantageous conditions.A high country risk index forces higher interest rates to be offered to raise funds in the international market, which increases the cost of debt and complicates the management of public accounts.
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After the national legislative elections, the index fell by more than 600bp.Since the inauguration of Javier Mileico as president, the indicator has fallen by nearly 1,400 units.If November 2023, the month of La Libertad Avanza’s electoral victory, is taken as a starting point, the accumulated decrease is around 1,900 integers.
However, global instability, materialized in the fall of technology stocks, sovereign securities and Bitcoin, hit Argentine bonds in the last rounds and caused the country risk index to climb from 480 points to 520, above the regional average of 300 bp.
This dynamic occurred despite the fact that the Central Bank of the Argentine Republic (BCRA) complied with one of the market demands to bet on local instruments: the purchase of currencies within the floating band.
In dialogue with Infobae, the associate director of EcoGo, Sebastián Menescaldi, considered that for the country risk index to decrease again, “in addition to continuing with the fiscal policy it has, the Government has to continue adding reserves in greater quantities and see that this is sustainable over time. Until now, the Treasury used much more to cancel debt, with which, in practical terms, they did not accumulate reserves. The number would have been different if they had not taken the repo for“USD 3 billion in January.”
In effect, the almost USD 1.5 billion added by the monetary entity did not translate into an effective increase in international reserves.A significant portion of that sum was acquired by the National Treasury to meet debt payments with international organizations, so holdings in foreign currency are below 45 billion dollars.
However, Menescaldi highlighted that the situation improved with the acquisition of foreign currency since “before it had all been a loss of reserves due to payments abroad and now there was a drop, but much smaller. The idea is to consolidate this purchase. It can be consolidated in a framework where the monetary part and local interest rates are also sustainable over time. There is still time to continue showing it.”
In any case, the purchases of dollars made by the Central Bank inside and outside the exchange market influenced the evolution of the markets.Since the launch of the program to acquire foreign currency, the JPMorgan Chase index deepened its decline until reaching the lowest level since the beginning of Milei’s mandate and since mid-2018.
In fact, the BCRA made 25 consecutive days of purchases for almost USD1.5 billion, coinciding with the start of “phase 4” of the current economic program.To carry out these acquisitions, the monetary entity issues pesos, without applying sterilization measures, which preserves existing liquidity and helps prevent increases in interest rates.
Official projections estimate that the acquisition of foreign currency during 2026 could be between 10,000 and 17,000 million dollars, depending on the progress of the remonetization of the economy.The president of the BCRA, Santiago Bausili, pointed out that the continuity in the reserve accumulation process will depend on both the demand for pesos and the flow of dollars into the system.
For the economist of the Policy Observatory for the National Economy (OPEN), Federico Machado, the electoral victory of the ruling party in the mid-term elections made investors find a willingness to pay in Argentina, which took the country risk from 1,100 points to the area of 500 units.
“Now the question is about the payment capacity. In that framework, going out to buy reserves is a good sign, but the true capacity will be when Argentina achieves the accumulation. For a country risk below 400 points, the BCRA needs to have in its coffers some 10,000 or 12,000 million net dollars. For now, it is far away. Likewise, Ecuador launched a successful tender for foreign debt with 480 points,” he analyzed.
The director of consulting firm C
“It also has a lot to do with the fact that the Central Bank has a policy of trying to keep liquidity fairly limited, precisely to contain inflation. In December they had dropped too much, perhaps. We were in a very particular moment after the elections, with a fairly strong drop during much of the end of last year,” Tiscornia analyzed.
The Economist of C
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The main supplier of pesos currently is the Central Bank, through the purchase of dollars.The organization chaired by Bausili permanently monitors the amount of money they inject, in order to avoid an inflationary jump.Lowering rates is key to reactivating credit to companies and families, and, consequently, to supporting economic growth.
