Among the variables analyzed in macroeconomic studies, country risk is a key indicator because it measures the likelihood that a country will fail to meet its financial obligations—in other words, it assesses the risk of default on external debt.
The EMBI (Emerging Markets Bonds Index), developed by the financial firm JP Morgan, reflects the level of confidence or distrust that investors and markets have in a nation’s economy. The higher the index value, the greater the country risk, and therefore, the higher the perception of instability or default.
An investment maxim states that higher risk demands higher returns. That’s why countries with elevated country risk ratios may still receive international loans; however, these are issued with interest rates adjusted to reflect the risk of default. This affects public finances, domestic consumption, and foreign investment.
For companies, country risk is one of the most important variables to evaluate. A high country risk signals market uncertainty, can impact the valuation of local stocks, and reduce foreign investor interest—leading to stagnation.
The presented chart shows the variation in country risk across Latin American nations according to the JP Morgan EMBI Index. The map highlights the following:
Latin American countries with the highest country risk:
Countries with the lowest country risk:
In summary, country risk is a key indicator for understanding a nation’s economic health. It succinctly shows how attractive a country is to international investors and whether it can attract foreign capital, as the index considers multiple factors.
It is the responsibility of governments to reduce country risk, strengthen institutions, and maintain responsible policies that foster international confidence and stable rules of engagement. If you’re looking for solid companies to work with or want to assess businesses before granting credit, don’t hesitate to contact us. We are a credit reporting agency specializing in credit reports for Latin American companies.
