Argentina's economic problems likely will impact its neighboring countries at varying levels, with smaller countries mostly bearing the brunt, Fitch Ratings warned.
Growth in smaller economies such as Uruguay, Paraguay and Bolivia would be impacted given the countries' exposure to Argentina in terms of trade and remittances, among other factors, Fitch said in an Oct. 1 statement.
For instance, Argentina poses contagion risks to Uruguay, which faces growth underperformance and fiscal deterioration, through the tourism sector. Meanwhile, further erosion in Bolivia's competitiveness side by side with Argentina could amplify macroeconomic weakness as a result of a drop in international reserves, Fitch noted.
The Argentine crisis also contributes to a zero-growth forecast in Paraguay, Fitch said. However, the country has a better fiscal profile than Bolivia and Uruguay, providing greater cushion from contagion in the region.
Larger neighbors such as Brazil and Chile also face risks related to Argentina. However, Chile has a more robust fiscal position that helps reduce its vulnerability to the Argentine contagion, Fitch said.
Reduced trade interconnection, lower direct financial exposures and smaller financial market contagion risk should reduce the impact of the Argentine crisis on the region, the rating agency said.
