The ITT issue, the upcoming elections, and normal market movements keep the indicator fluctuating.

Ecuador’s country risk stood at 1,278 points on July 15, 2024. This figure is 60 points lower than the 1,338 points recorded last Friday. It is also the lowest recorded since June 24, when it stood at 1,462 points, marking a significant drop of 184 points.

The fluctuations in the indicator are not due to any single determining factor but are instead a result of the normal development of the international market. High US interest rates reduce the appetite for bonds, which in turn drives up the yields required to make these bonds attractive.

According to Ramiro Crespo, president of Analytica Securities, a country risk level between 1,300 and 1,400 points is not favorable. Despite the recent decrease, the risk remains high and has not yet reached levels at which Ecuador could issue debt.

Factors Influencing High Country Risk

Crespo points to several factors influencing the high level of country risk:

1. Uncertainty Over the ITT Oil Block: The lack of clarity about the future of the ITT oil block could be putting upward pressure on the country risk indicator. The market may have already factored in the potential loss of production. The government will need to begin closing the ITT oil block to comply with the popular mandate from the August 2023 consultation. Failure to do so could lead to a sense of betrayal among the population, which has already expressed the need for its closure.
2. Increase in Taxes: Crespo notes that even the recent increase in taxes was likely part of compensation measures for the loss of income from the ITT oil block. Economists have warned that discontinuing exploitation of the ITT could cost Ecuador around $1 billion, affecting the national deficit.
3. Political Instability: Crespo emphasizes the importance of having low country risk levels to allow for debt issuance, an optimal way of exchanging expensive debt for cheaper debt, thus avoiding more traumatic debt restructuring processes. However, coordinated efforts across the political spectrum are necessary for this to happen. Recent crises involving the Judicial Council, the Court, and the Citizen Participation Council create uncertainties about the country’s future. The possibility of a return to a Correa administration, known for declaring a debt moratorium, further contributes to the high country risk index.

Crespo believes that as long as these uncertainties persist, the country risk index will remain elevated.