Central and Latin America: Country Risk Ratings

Argentina (ARG)

Argentina's overall risk is at medium. Since assuming the Presidency in December, Javier Milei has advocated for a radical change by sending an emergency decree to Congress, revising several laws in Argentina, and moving the Argentinian economy towards a more friendly-market economy. However, his small political support in Congress jeopardized the approval of the decree, which is now put on hold. Additionally, several measures of the decree were ruled unconstitutional by the Supreme Court. Political violence risk is at medium, although the country is polarized and protests against Milei have been registered, the situation has not escalated to violent conflicts. Legal and regulatory and political interference risks remain at medium-high as the government aims to deregulate the economy while the Argentine Congress is stopping government efforts.

Moving to the economic front, sovereign non-payment risk is at medium-high. The government has limited access to international markets and is depending on the deal with the IMF to fulfil its balance of payment obligations. Exchange rate transfer risk is at high due to Argentina's low level of U.S. dollars in the country and the difficulty of the country to accumulate reserves. Additionally, in the last three months, the Argentine Peso has depreciated over 100%. The risk of doing business is currently at high due to the complicated economic situation of the country. Banking vulnerability is at a medium level despite all the economic problems of Argentina, taking into account that the banking sector has an adequate level of liquidity, and there are no signs of bankruptcy in sight. The inability of the Government to provide stimulus is at high partly due to the high level of the deficit, which the government will try to lower this year, limiting any fiscal push from the government.

Bahamas, The (BHS)

The Bahamas maintains a medium-risk status. The Caribbean country benefits from a well stablished democracy with a track record of upholding political rights and civil liberties, resulting in a medium-low political violence risk. However, it will be crucial to monitor security developments, given that the U.S. State Department has warned its citizens “increased caution” when travelling to the island, as its capital recorded 18 murders just in January of 2024. While the Bahamas still has room for improvement in consistently enforcing laws against corruption, it is generally regarded as a transparent nation. It demonstrates respect for the rule of law, boasts a developed legal system, adheres to contracts, and maintains an independent judiciary, resulting in medium-low risks concerning legal and regulatory matters. Supply chain disruptions are also categorized as medium-low risks. Similar to its Caribbean counterparts, the country is vulnerable to weather-related disruptions. Nevertheless, the country tends to exhibit more resilience to these shocks compared to some of its neighbors, owing to its superior infrastructure, greater wealth, and more robust political institutions. Despite these favorable aspects, the risk of doing business remains medium-high. The most enticing incentive offered by the country is the tax relief provided by the government, with no taxes imposed on income, capital gains, or inheritance; although in recent months, the government has proposed a minimum 15% global corporate tax and it also intends to collect 10% VAT for goods and services cruise lines provide. Additionally, the Central Bank of Bahamas introduced reforms to relax Exchange Control Administration, on certain current (mostly trade-related) and capital (investment-related) transactions – this is expected to have a positive impact on the ease of doing business. On the economic front, the IMF expects the Bahamas to grow 2.3% in 2024 and 1.8% in 2025, supported by tourism gains and foreign investment. The Fund also foresees the government debt (as percentage of GDP) to continue its downward trend, moving from 100% in 2021 to 81.9% in 2025. The Finance Minister anticipates an increase in revenues driven by improvements in tax collection efficiency and fairness. Moreover, the country is embarked into a fiscal consolidation path after the pandemic prompted the fiscal deficit to reach 13.1% of GDP in 2021. The IMF now estimates that the Bahamas will dramatically decrease the deficit to 2.0% in 2025, primarily attributed to normalized government expenditure (via lower SOEs’ spending) and augmented tax and non-tax receipts. Lastly, despite being an attractive destination for international banking and financial services companies, as the island enjoys a liquid financial sector with declining non-performing loans, the country's banking sector faces a high risk due to its susceptibility to money laundering.

Brazil (BRA)

Brazil's overall risk is currently at medium, with no significant changes in any of the individual risk categories during this period of analysis. The inability of the government to provide stimulus remained at medium-high, with the primary deficit and the gross general debt standing at 2.1% and 75% of the GDP in 2023, respectively. We feel the current government has little room to expand expenditures, although they refuse to cut them, leaving increasing government revenues through higher taxes as the sole revenue-creation alternative. The banking sector's vulnerability remains at medium level, with good liquidity provision balancing the rise of delinquency rates, the latter being a consequence of high interest rates. The risk of doing business remains high as Brazil's rigid bureaucracy and high taxes continue to burden Brazilian companies. Sovereign non-payment risk is at medium-high due to the high level of debt, although there are no signs of insolvency in the short term as the Brazilian government is able to roll over the debt comfortably in the local market. Supply chain disruption risk is also at medium-high as inflationary risks have not disappeared from the horizon yet.

On the political front, Brazil will hold municipal elections in October. This election will test the political force of President Lula, who has seen his popularity drop in the recent months. Although the leader of the opposition, Jair Bolsonaro, is unable to participate in elections, we foresee the opposition winning a high number of mayors and municipal deputies leading Brazil to continue to be politically divided. Political violence risk is at medium-high due to this polarized situation, although no escalation through the use of force is expected before and during the elections. Legal and regulatory risk remains at medium-high as Brazil's rule of law is constantly being revised by legal actions in the judiciary. Political interference risk is at medium-high as the current government seeks to use state companies such as Petrobras to its political will, while similar situations can occur in other companies in which the government has participation.

Costa Rica (CRI)

Costa Rica’s overall risk remains at a medium-low level. The Central American nation maintains a medium-low risk of political violence, attributed to its geopolitical stability. In this regard, the country’s main challenge is related to security; for instance, Costa Rica faced its most violent year in 2023, recording 907 homicides, a 38% increase from the previous year, as drug cartels fight for territory. Local politicians and analysts express concern about the escalating security issues, fearing that the country may follow a similar path to Ecuador – transitioning from stability to marked violence in a short span. Costa Rica’s overall attractiveness is mirrored in its doing business risk rating, which stands at a medium level. The country has a well-defined strategy to promote its exports, which is primarily based on free trade agreements and exports diversification. Likewise, it has leveraged recent global supply-chain disruptions to position itself as an attractive choice for “nearshoring” and “friend-shoring”, capitalizing on its skilled labor force. Notable instances include unveiling a roadmap to emerge as a global semiconductor hub (which complements an existing partnership with the U.S. State Department) and major investments from companies such as Intel and Johnson & Johnson. Factors contributing to Costa Rica's ability to attract foreign direct investment also include its medium-low risk ratings for both institutional (legal and regulatory) stability and supply chain disruptions. While corruption is not as pervasive as in other regional countries, Costa Rica continues efforts to combat it, exemplified by enacting the Comprehensive Anti-Corruption Law to protect whistleblowers. Additionally, despite infrastructure limitations and vulnerability to natural disasters, the nation's political stability effectively offsets these potential threats. From an economic standpoint, the IMF projects the nation's growth to reach 3.5% and 3.3% in 2024 and 2025, respectively. Furthermore, Costa Rica has been recovering from a delicate fiscal situation that it faced in 2018. While considerable progress has been achieved (mostly explained by a reduction of government spending following the fiscal rule), the path to full fiscal consolidation still requires further steps. Consequently, the risk associated with providing fiscal stimulus is assessed to be at a medium level. In a similar vein, a recent assessment by the Fund indicates that the country possesses adequate capacity to meet its financial obligations – with central government debt (as percentage of GDP) expected to reach 60.2% (2024) and 59.2% (2025). The risk of sovereign non-payment is deemed medium for Costa Rica. Lastly, the exchange transfer and banking sector vulnerabilities pose medium and medium-low risks, respectively. The current account deficit is expected to improve as a result of a stronger trade balance, while international reserves buffers are strong. The Costa Rican colon has experienced a large appreciation (around 35% since mid-2022), which has led the business sector to question the role and policy credibility of the Central Bank. The banking sector risk follows the monetary tightening implemented by the Central Bank of Costa Rica, which began to affect the repayment capacity of certain borrowers with loans tied to variable rates. However, it continues liquid and remains well capitalized.

Cuba (CUB)

Cuba’s overall risk level remains high. Miguel Diaz-Canel has been president of the country since March 2023 after winning the elections. Political violence remains medium, with political interference and legal & regulatory risk at a high rating. Manuel Rocha, a former US ambassador in Bolivia, was arrested in Miami and is being charged by the US government for acting as a Cuban agent for more than 40 years. Xi Jinping, China’s president mentioned that "China will continue to firmly support the Cuban people, oppose foreign interference and the embargo, and safeguard (Cuba's) national sovereignty and dignity". Cuba is blaming US sanctions and COVID-19, for the poor status of its economy. Cuba also uncovered a human trafficking ring, which promised to Cuban citizens Russian citizenship in exchange for fighting in their war against Ukraine. Supply chain disruption remains high. Growth is expected to reach 3% in 2023, and a 2% expansion is expected in 2024, according to the economy minister of Cuba announcement in December, Alejandro Gil, who was also recently sacked by the president for trying to rise prices even further in Cuba’s almost bankrupt economy. Inflation was reported to be equal to 30% in 2023, from Gil, while food prices rose by 78%. Manuel Merrero, Cuba’s prime minister has announced measures, such as price and tax increases, but also the decrease in subsidies in order to restore the budget deficit that was projected to be higher than 18% of GDP. Sovereign non-payment remains medium high, with exchange transfer high. The value of the Cuban peso has been stagnant over the past 12 months, as it is pegged to the US dollar at a rate of 1 USD per 24 CUP. The risk of doing business remains very high, due to the current economic status of the country, as the inability of government to provide fiscal stimulus remains medium high.

El Salvador (SLV)

El Salvador’s overall risk level remains medium high. Nayib Bukele will remain president of the country after being re-elected in February, having 83% of the votes. Political violence and political interference remain medium high and legal & regulatory risk remains high. Bukele continues his fight against the gangs of El Salvador, with over 70,000 suspected gang members arrested since May 2022. For instance, he deployed 8,000 soldiers in Cabanas to surround the area, with gang members now leaving the urban centres of the country to hide in more rural areas. El Salvador’s authorities announced that the number of homicides dropped by about 70% in 2023. A former national security adviser, Alejandro Muyshondt, who was arrested for leaking documents, was found dead in state hospital, where he was sent after suffering a stroke. Meanwhile, Bukele has made El Salvador the first country in the world to accept bitcoin as a legal tender. The government has spent USD 120 million on buying bitcoins, but also USD 200 million to promote the coin to the citizens of El Salvador. Supply chain disruption remains medium high. Growth is expected to slow in 2024 to 1.9%, according to the IMF. El Salvador’s state energy authorities have presented a new legal framework to lawmakers in order to boost oil and gas exploration. CPI is forecast to drop to 2.4% in 2024 and carry on being low and stable in the following years. However, the current account deficit is projected to stay stagnant in 2024 at -4.5% of GDP, with a government debt/GDP ratio of 73.4%. El Salvador’s bitcoin policies have distanced the IMF from continuing with the USD 1.3 billion loan that was discussed during Bukele’s first term. According to research, 88% of the population did not use bitcoin during 2023 and it was only used for 1% of the total remittances. Sovereign non-payment and exchange transfer remain medium high, given the current account deficit and high government debt/GDP ratio. The currency utilised in El Salvador, since 2001 is the US dollar. The risk of doing business and the inability of government to provide fiscal stimulus remain medium high, as banking sector vulnerability remains medium low. 

Honduras (HND)

Honduras’s overall risk level remains medium high. Xiomara Castro, leader of the Liberty and Refoundation party remains president of the country and the first female president. Political violence remains high, with legal & regulatory risk and political interference at a medium high. Former police chief Carlos “El Tigre” Bonilla has plead guilty on drug trafficking charges and was reportedly taking bribes in exchange for cocaine shipments to be passed without inspection. This occurred just before former president’s Juan Orlando Gomez trial, with the US Justice Department accusing him of abusing his power to run Honduras as a narco-state and receive millions in bribes from the cartels, despite being considered as an ally by the United States during his presidency. Moreover, Hernandez and Lobo, another former president, are being charged for fraud, for using public funds to finance their political campaign, a total of USD 12 million. Supply chain disruption remains medium high. Growth is expected to rise to 3.2% in 2024. Honduras’s economy is known for the production of agricultural products, such as coffee but also the textile industry, with 40% of the population working in the agricultural sector. CPI is forecast to drop to 4.7% in 2024, compared to 6.4% in 2023. The current account deficit is projected to decline to -4.9% of GDP in 2024 and to continue to decline in the next few years. The Central American bank for economic integration has approved of a USD 606.9 million loan to Honduras, to improve the transportation infrastructure. Sovereign non-payment and exchange transfer remain medium. The Honduran Lempira, the domestic currency has slightly appreciated in value against the US dollar over the past 12 months. The risk of doing business remains high, due to the high degree of corruption, as banking sector vulnerability remains medium low.

Mexico (MEX)

Mexico's overall risk is medium-high. Most of the attention this year will be turned to the general elections in June. Claudia Sheibaum from MORENA is expected to have a comfortable victory, building on incumbent President Lopez-Obrador's high popularity. However, we expect the Congress to continue to have a similar composition to the current one, meaning Morena will not have the Constitutional majority. We expect little change in terms of policy making. Political violence risk in Mexico is high due to the strong power narco forces hold in Mexico. For a similar reason, supply chain disruption is at a very high level in Mexico. Political interference risk is at medium-high as the current government has shown clear intentions to interfere in the electrical sector, although it was vetoed by the Supreme Court in February 2024. Sovereign non-payment risk is at medium as the government sees a higher deficit this year, despite public finances and debt levels are in a healthy state. 

The risk of doing business is currently at medium-high as the government seeks unfriendly market policies, and is eager to lift the state's role in the economy. Banking sector vulnerabilities are at medium-low due to the level of liquidity from banks, which are showing strength despite the rise in interest rates. The inability of the government to provide stimulus is at a medium level due to the fiscal space to increase debt and foment fiscal deficits to stimulate the economy. Another important political event for Mexico has been the recent invasion of their embassy in Ecuador. Ecuadorian police invaded the Mexican embassy in order to arrest former Vice-President Jorge Glass, who was seeking political asylum in the Mexican embassy in Quito. As a result, Mexico has broken diplomatic relations with Ecuador and will seek legal actions against Ecuador on International courts, an action that will likely span to the next President.

Nicaragua (NIC)                                                                                                                                                                                                                                                                                                                                

Nicaragua’s overall risk level remains medium high. Daniel Ortega, leader of the Sandinista National Liberation Front remains president of the country. Political violence and political interference remain high, with legal & regulatory risk at a very high. Nicaragua’s government has shut down the country’s scouting organisation and 7 other nongovernmental organisations. It has also arrested and then expelled 19 priests, to the Vatican on treason charges. The government has not issued any statements yet regarding any crimes committed by the priests. Since the protests in 2018, Ortega has accused church leaders of seeking to ruin his government, through a coup. Nicaragua has signed a free-trade agreement with China for 71% of its products, including leather, meat, seafood and automobile parts. Ortega’s government, which has been criticised for growing unemployment and poverty, which has led many citizens to migrate to other countries, such as the U.S. A record of remittances was reported in 2022 equal to USD 4.24 billion, by Nicaraguan migrants sending money to their home country. Meanwhile, supply chain disruption remains high. Growth is expected to rise to 3.3% in 2024, according to the IMF. CPI is forecast to drop in 2024 to 5% and is forecast to continue to decrease in the following years. Nicaragua who reported a current account surplus in 2023, after 2 consecutive years of a deficit, is projected to report a surplus of 0.2% of GDP in 2024, with a government debt/GDP ratio of 40.2%. Sovereign non-payment remains medium high, as exchange transfer remains medium low. Meanwhile, the Nicaraguan Central Bank has announced that it will end its progressive devaluation of the Nicaraguan cordoba against the US dollar, and will hold the exchange rate at 36.6243 cordobas per dollar. The risk of doing business remains high, due to the significant levels of corruption, the poor infrastructure and political and economic instability. Banking sector vulnerability and the inability of government to provide fiscal stimulus remain medium low.

Paraguay (PRY)

Paraguay’s overall risk level has decreased from medium high to medium. Santiago Peña remains president of the country after being elected in August 2023. Political violence remains high, political interference remains medium high and legal & regulatory risk remains high. Senator Kattya González, one of the few opposition voices has been expelled from her position. González was known for criticizing politicians for their ties to organized crime and corruption and former president Horacio Cartes was one of her targets, who was also been sanctioned by the US for corruption. González accused Cortes of being the one responsible for her removal. Her expulsion led to significant protests and unrest, hoping that Paraguay will not return to a dictatorship. Many businesses claim that her expulsion will hurt Paraguay’s image and ability to attract foreign investment. Supply chain disruption remains medium high. Growth is expected to slow in 2024 by 0.7% to 3.8%, according to the IMF. Paraguay’s economy depends highly on the agricultural sector, which employs about 25% of the total workforce and accounts for about 20% of the GDP. The European Union has been trying to complete a free trade agreement with the Mercosur bloc, including Paraguay, Argentina, Brazil and Uruguay for agricultural products, something that has upset European farmers. Farmers fled the streets complaining that importing cheaper imports from other countries that do not comply with EU’s environmental standards. CPI is forecast to drop to 4.1% in 2024, depicting a 0.6% decrease. Paraguay’s current account surplus is projected to drop to 0.1% of GDP in 2024, but rebound in the next few years, with a manageable government debt/GDP ratio of 42.9%. Sovereign non-payment thus remains medium, as exchange transfer decreased from medium high to medium. The Paraguayan Guarani has appreciated by 7.14% over the past 6 months against the US dollar. The risk of doing business remains medium high, as corruption seems unchanged. Banking sector vulnerability remains medium, with the inability of government to provide fiscal stimulus declining from medium high to medium.

Peru (PER)

Peru's overall risk remains at medium. The protests against President Dina Boluarte have ceased in recent months, but she is facing legal charges, accused of illegal enrichment. In recent months, the President has been seen wearing Rolex watches, which are incompatible with her salary from past years. Although the charges could advance, Boluarte has a good relationship with the Congress, which could prevent her from facing impeachment. At the moment, it seems more and more likely she will remain in office until the end of her mandate in 2026. The political violence risk is at medium-high. Although the protest situation is calmer now, the situation is fluid and could change suddenly due to the low popularity of Boluarte’s government. The Legal and Regulatory risk is also at medium-high, as the Peruvian Congress attempts to change the main laws to benefit state companies. For similar reasons, the Political Interference risk is at Medium-High.

On the economic front, although the Peruvian economy has seen slower growth in the past, the political disturbances of the country do not translate into macroeconomic imbalances. The sovereign payment risk is currently at medium. Although there has been some rise in debt, it is currently at reasonable levels, at 33% of the GDP. The exchange transfer risk is at medium-low due to the strong FX reserves accumulated by the Central Bank of Peru (25% of the GDP). The risk of doing business is at medium-low due to the ease of doing business in Peru, which remains very market-friendly. Finally, the inability of the government to provide stimulus risk is at medium-low, as the government still has plenty of fiscal space to stimulate the economy.

Venezuela (VEN)

Venezuela has a very high overall risk. The South American country is set to hold presidential elections on July 28th 2024. President Nicolas Maduro will seek re-election amidst a campaign marked by contentious decisions. Notably, opposition figures like Maria Corina Machado (alleged corruption) and her substitute Corina Yoris (missed deadline to register) have been disqualified from the presidential race. Currently, the opposition is represented by Edmundo González, a former diplomat. Internationally, tensions with Guyana has also escalate as Venezuela expands its military presence to assert claims over the oil-rich Essequibo region. Overall, political violence is a very high risk. The United States has been closely monitoring developments in Venezuela's upcoming election. American officials have stated that they will not extend a temporary license that eased sanctions on Venezuela's oil and gas sector unless President Maduro demonstrates progress towards fulfilling commitments for transparent elections. However, the effectiveness of this agreement has been called into question following the arrest of prominent opposition figures. Additionally, Venezuela has ordered the arrest of journalists, activists, and others allegedly involved in a plot to assassinate a state governor and President Nicolas Maduro. The risk of political interference is considered very high. Venezuela faces a significant legal and regulatory risk, underpinned by instances of corruption and a lack of transparency. An example is the arrest of a former oil minister of the state-owned company in connection with a corruption scheme that started in 2023. Moreover, the laws and regulations governing business operations in Venezuela are subject to frequent changes, adding to the uncertainty. Consequently, the risk associated with conducting business in Venezuela is considered very high. This assessment is further complemented by challenges such as weak infrastructure, regular increases in minimum wages—such as the 43% hike implemented in January 2024—and currency devaluation, among other factors. Sovereign non-payment and exchange transfer risks are both considered very high. The country struggles with foreign exchange shortages, yet the Central Bank of Venezuela (BCV) has managed to maintain relative stability in exchange rates through interventions. This trend is expected to persist, especially given the upcoming electoral year, which typically sees increased public spending. Controlling the exchange rate could serve as a strategy to curb further inflationary pressures. Additionally, Venezuela faces significant macroeconomic imbalances, evident in key indicators such as inflation, estimated at 338%, a fiscal deficit equivalent to 3.4% of GDP, and a general government gross debt amounting to 148% of GDP, according to IMF data for 2023.