After Credit Suisse’s announcement that it will buy Ecuadorian debt bonds, the country risk dropped 81 points and stood at 1,840.
Facade of the Credit Suisse headquarters in Zurich, Switzerland.
Ecuador’s country risk indicator dropped 81 points and stood at 1,840 points on Wednesday, April 26, 2023.
The reduction occurs after the Swiss bank Credit Suisse informed that, with USD 800 million, it will buy a part of the foreign debt in Ecuador’s bonds. The financial entity offers to buy the bonds at 53% and 30% of their original value.
Credit Suisse has an interest in the series of bonds maturing in 2030, 2035 and 2040.
The political crisis
Thus, the country risk was at the lowest level so far in April 2023, after an escalation that began on March 28.
A day earlier, on March 27, the request to begin a political trial against the president of Ecuador, Guillermo Lasso, had reached the Constitutional Court.
The moment of political crisis unleashed nervousness in the international markets, as fears increased that Ecuador will not pay its external debt, which is known as default.
In this scenario, the indicator even reached a record high of 1,975 points on April 6.
But after the announcement of the purchase of these foreign debt papers by the Swiss bank, in the markets the perception of risk of non-payment by Ecuador was reduced.
Ecuador’s external bonds, which add up to USD 17,657 million, represent 37% of the total external debt until January 2023.
The effects for the country
A high country risk indicator makes the interest rates paid by a State for the issuance of external debt more expensive.
The high country risk also increases the interest rates paid by Ecuadorian companies and financial institutions that seek credit abroad.
With a country risk of 1,840 points , if the Ecuadorian State issued debt bonds it would have to pay an interest rate of 22% to 23% per year. It is high considering that the multilaterals lend at a rate of 3% and 4% per year.
Ecuador is among the Latin American countries with the highest country risk, only after Venezuela, which has a country risk of 34,180, and Argentina, which has 2,642.
