Creditworthiness in Latin American Could Be Impacted by Politics

Tension in Latin America’s political atmosphere this past year could send countries’ creditworthiness down a rocky path toward weakening growth and fiscal accounts. Although their already-low ratings address the economic, fiscal and financing challenges, Fitch Ratings said Jan. 10 that ongoing political debacles, such as reform delays and policy adjustments, aren’t making the outlook any brighter.

The economic impacts from certain political environments aren’t set in stone, Fitch said, but some countries, like Ecuador, have ideas of what’s to come regarding its fiscal future if the current status of governance remains as is. Fitch reported that the start of proceedings to impeachment Ecuador’s former vice president last month—due to bribe allegations—took the government’s focus away from boosting economic growth, necessary to reduce the surmounting fiscal deficits.

“The government debt burden will continue to rise rapidly and Ecuador will remain heavily reliant on external financing,” Fitch said. “The private sector is awaiting economic policy responses, undermining growth prospects, as much of the economic policy framework will depend on political developments in [the first quarter of 2018].”

Meanwhile, a delay in Costa Rica’s tax reforms could spell trouble as Fitch anticipates the central government deficit to widen in the coming year. The country’s rating fell in January 2017.

—Andrew Michaels, associate editor

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