After hitting a record high, El Salvador’s country risk as measured by the Emerging Markets Bond Index (EMBI) has declined significantly in recent months, hitting an unprecedented 14.33 points on 23 January. has become a value.
The EMBI is following Bitcoin’s adoption as legal tender in 2021 and warnings from economists and risk assessors that the central government’s liquidity capacity is limited as it faces an $800 million bond payment. It began to rise to unprecedented levels. January 24th.
This indicator was created in 1990 by the American financial company JP Morgan and serves as a reference for investors. Essentially, it measures the level of certainty that an emerging market will be able to meet its obligations and calculates a ‘spread’. This is the interest rate that bond issuers must pay plus the interest rate on US Treasury bonds. Considered risk-free.
Profile data for El Salvador goes back to 2007 and confirms that the highest level was recorded on 15 July 2022 when it reached 35.12 points.
Under these circumstances, the government had to offer a minimum interest rate of 35% if it hit the market, but could find appetite only from risk investment funds (known as vulture funds). it may not have been.
When Republic President Nayib Bukele announced that his government would begin early purchases of bonds for 2023 and 2025, the EMBI closed at 22.65 points and closed at 18.39 points on December 30.
In 2022, Finance Minister Alejandro Zelaya argued several times that the EMBI was speculative at the mercy of the opposition, did not reflect the economic realities of El Salvador, and that the government was solvent.
Zelaya said the bond payments were a “message of trust” and that the EMBI “should scale back.” “They are trying to misrepresent us before the international community and the market and this is having an impact,” the official said, recalling that El Salvador’s risk reached the highest level than Ukraine’s. bottom.
“President (Volodymyr) Zelensky was fighting the Russians with a rifle on the outskirts of Kyiv (…) but according to EMBI I was more dangerous (in terms of the country) than Ukraine,” he said. claimed.
Despite the decline in irrigation, El Salvador is the country with the third highest index in Latin America. Venezuela with 419.15 points and Argentina with her 18.92 points are ahead.
Panama has the lowest EMBI in Central America with just 2.14 points and Guatemala with 2.17 points. Costa Rica is 3.48 and Honduras is 5.55.