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Economic stability increases substantially in Latin America

15
Jun '07
Several Latin America sovereigns are on the cusp of reaching investment grade. The region has seen a surge in credit upgrades over the past five years and economic stability has increased substantially.

Of the seven major LatAm countries two are investment grade (Chile, Mexico) and three are on track to reach investment grade (Brazil, Colombia, and Peru) before the end of the decade. The other two countries (Argentina and Venezuela) are unlikely to reach investment grade before the end of the decade.

The improvement in creditworthiness and the increase in economic-financial stability are structural in almost all countries. LatAm of course remains more sensitive to external shocks than other EM regions due to its lower degree of creditworthiness and/ or higher dependence on commodity exports.

But even the riskier countries like Argentina and Venezuela have taken advantage of the export windfall and have reduced the level of their external liabilities. Governments have also taken advantage of higher growth to improve their fiscal position and to reduce (or at least stabilise) their debt.

Perhaps most importantly, most governments have committed themselves to a stability-oriented medium-term economic policy. Again, Venezuela (and to a lesser extent Argentina) are the exceptions. Populism continues to lurk in the background in several countries, but is unlikely to affect the outlook until the next round of major national elections towards theend of the decade.


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