El Salvador Pays 2 Percentage Points More

The country will have to pay an interest rate of 7.37% for $800 million in bonds sold today, whereas Panama will only have to pay 5.22% for $1 billion issued this week.

Friday, November 20, 2009

Three days ago, Moody's downgraded El Salvador's sovereign debt from Baa3 to Ba1, with a negative outlook.

On the other side, Standard & Poor's increased the rating outlook for Panama's debt from stable to positive, arguing that the Canal Expansion will fuel economic growth.

Both countries share similar debt ratings, but Panama has a diversified economy with positive growth perspectives while El Salvador is too reliant on expatriate remittances, so its economy its tightly tied to a recovery in the U.S. job market. These differences explain why El Salvador must pay more when issuing debt.

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