Central and Latin America: Country Risk Ratings

Argentina (ARG)

Argentina’s overall risk was maintained at medium-high, though there have been marginal improvements in some economic risks. In recent months, the Javier Milei administration has continued its shock plan to address many of the country's economic imbalances. The effects of this plan have improved the fiscal situation, reduced the need for international FX reserves, and lowered overall inflation, albeit at the cost of a prolonged period of recession. Politically, Milei has achieved some victories and suffered some losses in Congress. Although there have been protests against his administration, they have not affected the political stability of the Argentine government. Political violence risk remains medium, as despite the protests against the Milei administration, most of them have been peaceful, and any instances of violence were quickly brought under control. Legal and regulatory risk remains medium-high, as the current government is promoting regulatory changes aimed at liberalizing the Argentine economy. For similar reasons, political interference risk also remains medium-high, due to the potential for political interference in various Argentine institutions. Sovereign non-payment risk has been downgraded to medium from medium-high in our last assessment. This is due to the fiscal consolidation efforts of the current government, which have shifted the fiscal balance from a deficit to a surplus. Similarly, we have upgraded the government's ability to provide stimulus to medium-high. Although the situation is not ideal, Argentina's fiscal outlook is improving. Exchange transfer risk has been reduced to medium-high from high, as the FX reserve situation has improved. The need for foreign reserves has lessened due to lower current account deficits, and international reserves have risen to USD 18 billion, though they remain low. Banking sector vulnerability risk remains medium-low, as Argentina’s banking system continues to show adequate liquidity levels. The risk of doing business remains high due to the high level of uncertainty in the Argentine economy.

Brazil (BRA)

Brazil's overall risk level remains at medium-high. The biggest recent political development in Brazil was the cooling of relations with Venezuela. Although Brazil avoided stating that the Venezuelan elections were rigged, it has not recognized Maduro as the winner and has sought to prevent an escalation of tensions. On the other hand, Brazil has been highly critical of Israel's handling of the war in Gaza and its incursions into the Lebanon region.  Domestically, supreme Court Justice Alexandre de Moraes suspended X after the platform refused to take down certain social media profiles. X subsequently fired its legal representative in Brazil, and it now appears that the profiles have been suspended, with the social network likely to be reinstated soon. The results of the municipal elections have not significantly altered the political landscape, with the current polarization between left and right persisting.

The risk of political violence remains medium-high, reflecting the high levels of violence in the country, which impact its politics. This is exemplified by the physical altercations between two candidates in the municipal election in São Paulo. Legal and regulatory risks remain medium-high due to potential interventions in the current framework of the country. For similar reasons, political interference risk also remains at medium-high. Government officials are seeking measures to increase revenues, which will likely result in higher taxes. Sovereign non-payment risk remains at medium-high due to the country's high debt level (78% of GDP). Exchange-rate risk is rated as medium; despite the high debt level, as most of it is in domestic currency, and the country holds robust FX reserves (around USD 350 billion). The risk of doing business remains high due to the significant bureaucracy in the country. The government's inability to provide stimulus is also at medium-high, as the high level of debt leaves little room for increased expenditures.  Government officials are seeking measures to increase revenues, which will likely result in higher taxes.

Chile (CHL)

Chile’s overall risk is medium-low. The current political climate under President Gabriel Boric remains stable, but his administration walks a delicate line as it seeks to push forward a progressive reform agenda, including constitutional changes and economic reforms. Social movements, such as those advocating for pension reform, may reignite protests. Despite this, the country is aiming for political continuity as Boric works within the constraints of a divided Congress. After registering poor growth in 2023 (0.3%), the economy has rebounded in 2024 and is forecasted to grow by 2.4%.

The risk of political violence is medium-low, as there is potential for new protests due to ongoing dissatisfaction with government policies. However, the intensity of protests has declined compared to previous years. Legal and regulatory risks are also medium-low, as the Boric government has little chance of being able to significantly alter the current market-friendly economy, suggesting some stability in that regard.  Sovereign payment risk is medium-low. While Chile’s fiscal conditions have worsened slightly, the country maintains a strong track record of meeting its debt obligations. The debt-to-GDP ratio remains within manageable levels, and FX reserves are around 12% of GDP, providing confidence in the government’s ability to manage its debt. Exchange transfer risk is low due to Chile’s healthy foreign reserves and low level of government debt, ensuring minimal disruption to currency flows.  The risk of doing business is medium-low, as the country remains open to investment despite potential regulatory changes. Chile continues to be one of Latin America’s more attractive destinations for business. Banking sector vulnerability is medium-low, though inflationary pressures and potential monetary tightening could create challenges in the future. However, the banking sector remains resilient. Finally, the government's inability to provide stimulus is medium-low. While Chile’s public debt has risen, it remains manageable, allowing the government some flexibility to stimulate the economy if necessary.

Costa Rica (CRI)

Costa Rica's overall risk remains at a medium low level. Politically, a survey by the Center for Research in Political Studies at the University of Costa Rica indicates that President Rodrigo Chaves maintains 54% support. In 2024, President Chaves, as part of his administration key agenda, introduced the 'Jaguar Law to Boost Costa Rica’s Development' on two occasions, aiming to expedite public infrastructure projects by easing regulations on contracting and budget execution. However, the Constitutional Chamber ultimately declared the law unconstitutional. Moreover, the law has faced public criticism for diminishing the oversight authority of the Comptroller General's Office. A growing concern is the country's rising insecurity, with over 600 homicides recorded so far in 2024, surpassing 2021's total and nearing 2022's figure. Despite this, Costa Rica remains relatively stable, with political violence and interference risks rated at medium low and medium levels, respectively. The country's ability to attract foreign direct investment is supported by its medium low risk ratings for institutional (legal and regulatory) stability and supply chain disruptions. While corruption is less widespread compared to other countries in the region, Costa Rica continues its anti-corruption efforts, demonstrated by the Comprehensive Anti-Corruption Law, which protects whistleblowers. The regulatory environment is transparent, though bureaucratic red tape can deter investors. Despite infrastructure challenges and vulnerability to natural disasters, Costa Rica effectively mitigates these risks, maintaining a medium risk in doing business. Free trade agreements, free trade zones, and export diversification policies bolster Costa Rica’s export strategy. The country has also leveraged global supply chain disruptions to position itself as an attractive destination for nearshoring and friend-shoring, thanks to its skilled labor force and stable economic and political environment. Economically, the IMF projects Costa Rica’s growth at 4.0% in 2024 and 3.5% in 2025. In this vein, the Central Bank of Costa Rica sees 2024 growth driven by strong performance in exports, consumption, and investment. Domestic demand is expected to further support growth in 2025. The Ministry of Finance submitted the 2025 budget proposal to the Legislative Assembly of around USD 23.6 billion and represents a 1.9% decrease versus last year’s budget. In addition, 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. The risk of the government's inability to provide fiscal stimulus is at a medium level. The Fund foresees Costa Rica's central government debt to reach 60.3% of GDP in 2024 and 59.3% in 2025, with the risk of sovereign non-payment assessed as medium low. An IMF's recent assessment indicates that the country has adequate capacity to meet its financial obligations. The exchange transfer risk is rated medium low, and the banking sector vulnerability is at a medium level. The current account deficit is projected to increase from 2.0% of GDP in 2024 to 2.1% in 2025. Costa Rica benefits from robust international reserves, providing a solid buffer. The banking sector remains well capitalized and liquid, further supporting financial stability.

Mexico (MEX)

Mexico’s overall risk is medium-high. The results of the elections show Claudia Sheinbaum from MORENA winning in the first round and securing a qualified majority (two-thirds) for constitutional changes in the Chamber of Deputies, while falling just one seat short of a qualified majority in the Senate. Once the deputies and senators assumed office, Congress was able to approve the controversial judicial reforms of former President López Obrador, which will result in all federal judges, including Supreme Court justices, being elected by popular vote. This election of judges is set to occur in 2025, but concerns exist over candidates independence. Overall, Claudia Sheinbaum now has the power to change the rules of the game in Mexico, and this has unsettled the markets.  Political violence risk is high due to the elevated levels of violence in the country, with some regions being dominated by narcos. Recently, a mayor was assassinated, reflecting this situation. Political and regulatory risk is also high, as the new government will be able to change the rules of the game. For similar reasons, political interference risk is medium-high. Supply disruption risk is very high due to Mexico’s dependence on exports to the U.S., and a Trump victory could jeopardize businesses in Mexico. Sovereign payment risk is medium, given the adequate level of debt (around 50% of GDP). Exchange transfer risk is also medium due to adequate FX reserves (around 30% of GDP), with the high level of exports to the U.S. serving as a buffer. The risk of doing business is medium-high, driven by Mexico’s high bureaucracy and the potential adoption of anti-market policies in the future. Banking vulnerability risk is medium-low due to adequate levels of liquidity in the Mexican banking market. Finally, we have raised the government’s inability to provide stimulus to medium-high, in response to Mexico’s higher primary expenditure and doubts about whether they will return to budget surpluses.

Nicaragua (NIC)

Overall risk for Nicaragua is high. The country’s regime, led by Daniel Ortega, continues its authoritarian rule. In the most recent news, Nicaragua's Congress, controlled by Ortega’s forces, has granted the government authorization to prosecute exiled opponents and seize their properties in Nicaragua. In a negotiation with the U.S., 130 political prisoners were released to Guatemala, but they were stripped of their citizenship.  Political violence risk is very high due to the violent tactics used by the government to suppress any opposition activity. Legal and regulatory risk is also very high, as changes in the rules can occur suddenly, and the government currently holds an anti-market policy framework. Supply chain disruption risk is high due to the country's delicate economic situation. Political interference risk is also high as the authoritarian government can directly interfere in policies and promote rapid changes. Sovereign non-payment risk is medium-high, mostly due to economic conditions, although the government has recently registered a small primary surplus of 0.3% of GDP.

Exchange transfer risk is medium-low, as the government maintains adequate FX reserve levels to meet its obligations. The risk of doing business is high due to the current volatility in Nicaraguan regulations and the possibility of government intervention in local businesses. However, banking sector vulnerability is medium-low, as the banking system remains solid in Nicaragua. Finally, the government's inability to provide stimulus is medium-low, as it still has some capacity to increase expenditures to foster growth.

Peru (PER)

Peru’s overall risk is medium. Boluarte’s government continues to walk a fine line, as she depends heavily on a coalition in Congress to avoid impeachment. The violent protests following the attempted coup by her predecessor, Pedro Castillo, have somewhat subsided, and her government aims to remain in power until the next election, set for 2026. Another significant development was the death of former President Alberto Fujimori, who was recently released from prison on humanitarian grounds. Overall, political uncertainty remains prominent in Peru, while economic conditions have not deteriorated significantly.  The risk of political violence is medium-high, as new violent protests could break out at any time due to the fluid political landscape. Legal and regulatory risks are high, as the leftist government could impose changes to the current market-friendly laws in Peru. For similar reasons, the risk of political interference is medium-high. Sovereign payment risk is medium, although fiscal conditions have worsened in recent years; the government debt-to-GDP ratio remains at an adequate level of 33%, and FX reserves are around 30% of GDP. Exchange transfer risk is low, due to the high level of FX reserves coupled with a low level of debt. The risk of doing business is currently medium, as while there is a chance that changes may be made to pro-market laws, the economy remains open to business. Finally, the government's inability to provide stimulus is medium-low, as it could increase debt to further stimulate the Peruvian economy.

Uruguay (URY)

Overall risk for Uruguay is medium-low. Uruguay maintains the highest GDP per capita in South America, preserving a generally business-friendly environment. The biggest news at the moment is the general election set for October 27. Opposition candidate Yamandú Orsi from the Broad Front currently seems to be the favorite to win, although a narrow second round between him and Álvaro Delgado from the National Party is expected. In Uruguay, re-elections are prohibited, so incumbent President Luis Lacalle Pou, who holds a 40% approval rating, will not be a candidate.  Political violence risk is medium-low, as there is no significant violence in the current electoral process, and a smooth government transition is expected. Legal and regulatory risks are also medium-low, as the major proposals of the government do not aim to implement radical changes to Uruguay's current pro-market framework. For similar reasons, political interference risks are also medium-low.

Sovereign non-payment risk is medium-low, as the current well-balanced fiscal situation will allow the government to meet its debt obligations, which are currently around 60% of GDP. Exchange rate risks are also medium-low, with the government maintaining adequate FX reserves, approximately 21% of GDP, sufficient to cover its foreign currency debt obligations.  Banking sector vulnerability risk is low, due to the adequate level of liquidity and capital in the banking system and the overall health of the sector in Uruguay. Finally, the risk of government inability to provide stimulus is medium-low, as the government could increase its deficit to stimulate the economy if needed.

Venezuela (VEN)

Venezuela's overall risk remains at a very high level. The country held its presidential elections on July 28, with the National Electoral Council (CNE) ratifying Nicolás Maduro as the winner, presumably securing 51.95% of the vote against 43.18% for opposition leader Edmundo González. Maduro began his third mandate that will last until 2030. However, independent observers have deemed the election undemocratic, and the results have been rejected by the United States, the European Union, and several Latin American countries, citing the CNE’s failure to provide credible evidence of the results. This triggered widespread anti-government protests, resulting in dozens of arrests, at least 25 deaths, and Edmundo González seeking asylum in Spain. Consequently, political violence and political interference risks are classified as very high. Aligned with this unstable environment, Venezuela faces very high legal and regulatory risks, exacerbated by widespread corruption, a lack of transparency, and frequent regulatory changes. Businesses in the country encounter numerous obstacles, including a high tax burden, low demand, unfair competition, lack of financing, power outages, and security challenges. As a result, the risks of doing business and supply chain disruptions are classified as very high and high, respectively. On the economic front, Venezuela has seen a notable decline in inflation, which peaked at approximately 340,000% in 2019 but had decreased to 35.5% by August 2024. To finance his presidential campaign, Maduro’s government injected more than USD 3.6 billion into the economy during the first eight months of 2024, a 15% increase compared to the same period in 2023, according to the specialized portal Banca y Finanzas. While this intervention may help moderate inflation temporarily, the exchange rate transfer risk remains very high. In 2023, the International Monetary Fund estimated Venezuela’s public debt at 148% of GDP. The country has been in partial default since 2017, and despite promises from the Maduro administration to discuss debt restructuring, no meaningful progress has been made. As a result, Venezuelan bond values have continued to decline, and the sovereign non-payment risk is categorized as high.