A report by Moody’s Investors Service indicates that Argentina is highly exposed to governance risks. “Economic instability affects the quality of sovereign, banking and corporate credit,” they stress.
“Financial volatility and policy changes are the main channels of credit for Argentina’s political risks”, they underline. This leads the risk assessment agency to maintain its rating of Argentine debt at Ca, stable outlook.
“The frequent political noise of infighting and poor coordination of economic policies between branches of government hampers business confidencequote the report.
“The difficult external macroeconomic environment exacerbates these challenges, leading to very high inflation and low reserve levels, increase the risk of devaluations which can further increase inflation”indicate.
However, they point out that despite the stress of inflation and interest rate regulation, “banks have relatively strong fundamentals, with significant capital buffers after years of low loan issuance, adequate profitability and record liquidity composed of government and central bank bonds”.
regional risks
“The growing social and political risks present in Latin America have become increasingly relevant credit risk factors for issuers in the region governance risks; policy changes and government intervention; transmission channels that impact economic performance and financial volatility,” said Ariane Ortiz-Bollin, Vice President – Senior Credit Officer and co-author of the report.
In addition to evaluating the region, Moody’s specifically refers to six countries: Argentina, Brazil, Colombia, Chile, Mexico and Peru.
“Political changes in Brazil could lead to government intervention in state-owned companies and government banks“, indicates the current mandate of Lula Da Silva. “The changes in the management and the board of directors of Petrobras, for example, indicate a possible intervention in the commercial strategy, the asset sale program and pricing policies”.
In the Chilean case, they highlight it “Social risks are moderately negative.”
“The political ramifications resulting from the social unrest have changed the national debate and the political agenda of Chile. As the government seeks to address social demands for better quality and coverage of servicessectors most exposed to political change include banks, mining companies and energy projects“.
They attribute to Gustavo Petro’s administration that “the Colombian government’s ambitious reform program intensifies the risk of political changes, affecting investor confidence“.
As for Mexico, they state that “concerns are also about violence and security limit economic growth and investment“.
In the case of Peru, they predict that “a resurgence of social protests would be created governance risks, which would pose a threat to sovereign, banking, tourism and retail issuers”.
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Source: Clarin
