Why is country risk moderating in Latin America?

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Latin America has been on my mind this week, as I recently published my regional sovereign risk report on the Tellimer website (check out my channel if you have a subscription there).

The continent has a lot going for it. Proximity to the U.S. for some (even if it ain’t what it used to be…), commodity exports and even policy credibility for others.

But the chief advantage is that it is geopolitically boring - migration, drug trafficking, and violent criminality notwithstanding.

The point is that this region is isolated from the constant fracas on the Eurasian and African landmasses.

Rank

This isn’t to say that there isn’t a high degree of sovereign risk in Latin America. There is.

Whether it is EM’s most-notorious basket case (ahem, Argentina), serial defaulters like Belize, or the Bitcoin-prison-enthused policy volatility of El Salvador, there is plenty in the region to keep investors on their toes.

In fact, in 2025, only Jamaica, Colombia, and Costa Rica find themselves in the lower-risk half of the 43-country sample of EMs that I cover, out of the 12 Latin American countries included.

I don’t cover Chile currently, due to missing data, though surely it would also perform well on these metrics.

In 2024, Argentina was also part of this below-median cohort, thanks to an extraordinary government debt reduction signal, which has since moderated.

Contrast this with the ten countries in Europe and Central Asia that I track, of which eight out of ten are in the low-risk half.

This lower-risk profile in ECA is partly explained by higher income per capita at ~$22,000 (as of 2022), versus only ~$17,000 for the LatAm sample.

Changes

Yet in 2025, the country risk profile of these LatAm sample countries has improved relative to peers in other regions.

Looking at overall changes to sovereign stress probability this year, only four LatAm countries have seen their annual risk score worsen more than the median (i.e. the 1-21 ranks in the table above): Argentina, Costa Rica, Guatemala, and Jamaica.

As for the other eight countries: why such an improvement relative to peers?

A deceleration in the REER dynamic occurred in seven out of the eight, with Colombia the lone outlier. Brazil, Suriname, and Mexico have experienced large decelerations on this inflation-currency metric.

A decline in public debt-to-revenue has taken place in Belize, Suriname, Colombia, Paraguay, and El Salvador.

External public debt-to-GDP has also decreased in Belize, Suriname, Dominican Republic, Colombia, Paraguay, and El Salvador.

So cutting debt, raising revenue, stimulating growth, reining in inflation, and having a competitive exchange rate can combine to mitigate sovereign risk. Who knew?

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