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Amid the strong impact that the coronavirus crisis has had on the region’s economies and the levels of government debt to face the crisis, the Bloomberg agency dedicated a note highlighting the management of the crisis in the country.
The article highlights that the country has been able to better avoid the impact of the crisis on the returns of its government debt.
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Chile has the last government bond denominated in Latin American dollars with positive returns this year.
Notes maturing in 2026 are trading near 104.94 cents on the dollar, more than half a cent higher than they were at the end of 2019. While a slight gain by many standards, it stands out among the losses of all others sovereign bonds in dollars of the region.
It is a stark contrast to the end of last year when Chile’s reputation as a well-managed and stable country in Latin America was at the bottom after months of violent social unrest.
Now, you’re once again on the investor-friendly side, as low debt levels allow you a better position to fight the coronavirus pandemic than your regional neighbors.
Chile has been doing a great job in terms of the response to the virus, it has plenty of room to add debt and there is an appetite for new issues, according to Álvaro Vivanco, director of strategy for Latin America at Natwest Markets in Stamford.
Authorities in Chile have pioneered a “dynamic” quarantine system in the hardest hit neighborhoods and are now planning to deploy immunity cards for those who have recovered from Covid-19 and can return to work.
Only 174 deaths have been officially related to the virus, although the actual count could be higher. Although the number of positive cases in Chile exceeds 12,000, it is much less than those registered in Brazil or Peru.
To help offset the economic cost of the disease and containment measures, the government has increased spending, while the central bank cut its benchmark rate by 125 basis points to a record 0.5% in March. Policymakers have also bought corporate bonds on the secondary market to increase liquidity.
The efforts exceed those of many regional peers, who are facing the crisis from weaker fiscal positions. Argentina and Ecuador are struggling to avoid defaults, and Mexico has resisted increasing spending to help indebted companies.
Such is Chile’s perceived success that the government is now talking about a gradual and flexible return to work for state employees, then for private sector workers and finally for students.
The contrast with other countries could not be more marked. The debt of six Latin American governments is trading at financial stress levels of at least 1.00 basis points on US Treasury bonds, according to data analyzed by Bloomberg.
Although Argentina’s risk premium exceeds 4,074 basis points, Chile’s is only 306, according to JPMorgan indices.
With that comparison, investors are more willing to overlook the risk that violence will return in Chile once the virus containment measures are lifted and the focus returns to a constitutional referendum, Vivanco said.
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