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Montevideo, October 16th 2021 - 00:03 UTC

 

 

Investors wary of South American debt in local currencies

Saturday, August 21st 2021 - 09:20 UTC
Full article 3 comments
The political unrest caused by the recently inaugurated Peruvian government, have scared investors and the performance of the country's debt in Soles The political unrest caused by the recently inaugurated Peruvian government, have scared investors and the performance of the country's debt in Soles

South American debt in local currency has become a painful experience for international investors, with little signals of relief and reversal of the situation.

The growing risks of inflation, the increase in interest rates implemented by central banks and the growing fiscal concerns have added uncertainty to the profitability of regional debt, while currencies overall have suffered the impact of the fall in commodity prices and the Covid-19 resurgence threat.

The political unrest caused by the recently inaugurated Peruvian government, allegedly Marxist oriented, have scared investors and the performance of the country's debt in Soles has been the worst so far this year according to a Bloomberg/Barclays rating that measures results in US dollars. In effect its bonds have plummeted 27%, followed by similar although not so intense situations in Chile and Colombia. Brazil's debt in Reales was also down 5% during August.

The pandemic has hit Latin America harder than other emerging markets regions, which has led to greater financial pressure and more political turbulences. Last week because of a weakening of its currency and an increase in consumer prices, the Peruvian central bank had to increase the basic interest rate for the first time in five years. Chile last month was on the same path and Colombia is expected to follow at the end of the month with the central bank raising the basic rate. But another challenge is that interest rates are increasing when economic activity indicators remain below those previous to the pandemic.

Political turmoil is another factor, with Peru the leading example since so far the new government has only managed to bring more volatility to markets and lower the value of the currency. In Colombia, the frustrated fiscal reform triggered massive protests while in Brazil, the president Bolsonaro administration is trapped in several scandals. In Chile political uncertainty has seen the Peso plunge 14% in three months and investors are more interested in following opinion polls as to whom might be the next president, and his capacity to sort out fiscal problems. The threat is that if the political and economic risks in the region persist, investors might look at other emerging markets with better profits and less exposure.

Categories: Economy, Politics, Latin America.

Top Comments

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  • Steve Potts

    As of March 2020, Argentina was the Latin American country with the highest central government debt in relation to its gross domestic product (GDP). The volume of debt held by Argentina's central government represented 89 percent of the country's GDP. Among the countries shown in this graph, Brazil had the second highest share, with 79 percent. (Published 5 July 2021)

    Aug 21st, 2021 - 10:02 am 0
  • Brasileiro

    The US Empire is so lost that it even disagrees with Latin America's sovereign currency debt. Maybe the Empire wants us to dollarize our debt.

    kkkkk

    Aug 21st, 2021 - 02:23 pm 0
  • Chicureo

    Steve Potts & Brasileiro


    Although I don’t disagree with your assessment — Venezuela is by far worse off with the highest central government debt.

    Regarding Brazil — Perhaps the solution is the elimination of all former loan programs and future trade conducted solely on a barter basis — soya, corn and petroleum for sought after Western goods like the Soviet bloc conducted so successfully!

    Your country is an amazing bountiful cornucopia that has the potential to feed the world yet the extreme poverty rate there is depressing…

    …why not eliminate private property of farms and ranches and dividing small parcélelas to the poor campesinos to grow their crops instead?

    My country tried a similar experiment in the 1970’s that had to be cancelled abruptly!

    …it seems the idea of eliminating capitalism to increase the income of the poor always ends in misery…

    …and don’t worry — Lula will again assume the Presidency of Brazil — and
    nothing will really change…

    Marxism always works when they spend someone else’s money…


    ¡Saludos cordales desde Valle Nevado!

    Aug 21st, 2021 - 06:05 pm 0
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