Chile is the country with the lowest level of risk in Latin AmericaPublished: April 22, 2009
Both five-year Credit Default Swaps and the EMBI Global Chile have decreased significantly. Chile is the most stable market and the country which has most reduced its spread in the region.
Chile's country risk rating was halved following the release of risk indicators for different economies in the world.
Chilean Credit Default Swaps (CDS) peaked at 315 basis points on October 23rd, 2008, and have now fallen to less than half that figure at 146 points. The pattern is the same in JP Morgan's EMBI Global Index. Chile currently has a spread of 307 basis points, after reaching 411 points at the beginning of January.
The risk indicators of most countries have begun to fall since January, having reached their highest levels following the bankruptcy of Lehman Brothers in September.
Although a number of emerging countries have lessened their country risk, Chile is the country in Latin America which has most reduced its spread. Analysts highlight Chile's stability during the global crisis and the country's continued leadership in Latin America, followed by Brazil.
With lower sovereign risk, it is cheaper for local companies to get into debt abroad. In January, Codelco became the first Chilean company to issue debt in the North American market since the crisis. The debt was issued at a dollar rate of 7.5%. In March, corporate investment in the local market amounted to nearly US$ 615 million, as compared with a monthly average of US$ 130 million in 2008.
Eugenio Claro, partner in Munita, Cruzat & Claro, explains that, in general, the bonds of Chilean companies, "performed better in the crisis than those of Latin American and North American companies, with the same level of risk. This was because their rates increased less and now they have decreased, while others remain high".
Banchile economist, Rodrigo Ibáñez, indicated to the Santiago newspaper, Diario Financiero, that "on a national level, what we've seen is that Chilean Credit Default Swaps are the lowest in the region. The same thing has occurred in terms of country risk - a JP Morgan index. We are now closer to US bonds and this is a plus for Chilean corporate bonds".
JP Morgan's economist for the region, Vladimir Werning, explains that, "the market looks good due to the range of economic measures that Chile has taken to deal with the crisis".
Sources: