Argentines Obsessed with 'Country Risk' Saturday July 28, 8:34 AM EDT

By Lucas Bergman

BUENOS AIRES, Argentina (Reuters) - "Country risk" was once the kind of jargon understood by few Argentines except financiers and economists. But since the country's economic crisis came to a boil recently, it seems everyone from waiters to business executives speaks of little else.

"Country risk" -- the premium that Argentina must pay investors to entice them away from safe-haven U.S. Treasury bills and a barometer of the country's financial health -- has now entered the vernacular. Discussing it is now almost as common as asking for the time of day.

"We've been forced to do a crash course in bonds because the boss wants to know what country risk is every half an hour," a Buenos Aires secretary said as they studied the ins and outs of the local debt market.

Country risk, as measured by J.P. Morgan Securities' EMBI Plus index, indicates how much more interest in terms of basis points the government and Argentine companies must pay to secure financing. One hundred basis points is equivalent to one percentage point.

Argentine country risk is currently lingering around the 1,585-basis-point level after having fallen below 700 basis points after the government secured a multibillion dollar IMF-led aid package in December of last year and well above the 1,000 basis point level that sets investors' alarm bells ringing.

RISKY INVESTMENT

As such, Argentina, which has not seen economic growth for three years, is perceived as a riskier investment than fellow emerging markets Ecuador, Brazil, Russia and Turkey.

Argentina saw a similar mania for the exchange rate to the dollar in the inflation-racked 1980s as the main gauge of the Argentine economy before the local peso was pegged to the greenback in the early 1990s.

The national preoccupation for the country risk statistic in Latin America's No. 3 economy has come as a surprise to many of those in the know.

"What's all the fuss about?" asked surprised economic consultant Carlos Melconian. "I get home and the doorman asks me what the country risk closed at!"

J.P. Morgan's EMBI+ index is even quoted on television programs and radio chat shows -- programs that few would have ever thought it would gain any notice.

Even national soccer demigod Diego Maradona has found himself expounding on country risk in interviews avidly soaked up by many in this soccer-mad nation.

"I go to the bathroom in the morning and I say ... I hope country risk doesn't get me," Maradona said in a recent televised interview. "Country risk has really got us."

The fact is country risk is being watched closely by the average Argentine.

"That eight out of every 10 Argentines know the country risk indicator... confirms that it has become the daily barometer through which people measure how the economy is doing," commented political analyst Rosendo Fraga.

RISK DICTATES BEHAVIOR

"Country risk has become a necessary condition, though insufficient, to determine how consumers spend," Fraga added.

A recent study by Banco Rio, a subsidiary of Spain's Banco Santander Central Hispano (BSCH) (SCH), shows there is a correlation between country risk and the consumer confidence.

"Having the same role as that of the dollar during the inflation of the 1980s, country risk now seems to be the main variable families look at in forming their economic expectations," the study said.

And as Argentine nerves have risen along with country risk, so some Argentines have withdrawn savings to protect them.

"You're better off keeping your money in Uruguay," said systems analyst Carlos, who recently emigrated to the neighboring Latin American country.

Analysts say many Argentines don't really understand what country risk really means, and simply base their fears on a rise being a bad thing.

"The word risk implies danger, that everything is bad," said Mabel, a young photographer.

Paradoxically, the more embattled Economy Minister Domingo Cavallo seeks to ease the "country risk" with spending cuts and debt restructuring, the more entrenched the measurement has become in daily life.

http://money.iwon.com/jsp/nw/nwdt_rt.jsp?cat=USMARKET&src=201&feed=reu§ion=news&news_id=reu-149291&date=20010728&alias=/alias/money/cm/nw

-- Martin Thompson (mthom1927@aol.com), July 28, 2001