Brazil and Argentina are in ''social and environmental default'', according to an alternative country-risk rating index presented at the first Social Forum of the Americas.

QUITO, Jul 28 (IPS) - Brazil and Argentina are in ''social and environmental default'', according to an alternative country-risk rating index presented at the first Social Forum of the Americas, taking place this week in the Ecuadorian capital.

The alternative index (known by its Spanish acronym, IRPA) ''seeks to reflect the likelihood of social, economic and environmental deterioration faced by Latin American countries,'' Uruguayan economist Eduardo Gudynas, one of the creators of the new index, told IPS.

Two Uruguay-based non-governmental organisations, D3E (Development, Economy, Ecology, Equity - Latin America) and the Latin American Centre for Social Ecology (CLAES), developed the method as a kind of rejoinder to the traditional investment risk analysis by international credit-rating agencies to establish the credit-worthiness ratings on which investors rely.

Gudynas pointed out that country-risk ratings are used by governments in developing nations to guide economic policy in sensitive areas like the foreign debt, which is the focus of several of the panels at this week's regional gathering in Quito.

The Jul. 25-30 Social Forum of the Americas, held under the slogan 'Another America Is Possible', has drawn 8,000 participants from 40 countries, according to the organisers. It forms part of the World Social Forum, whose theme is 'Another World Is Possible'.

''Another world is possible, and we need an index to measure it,'' joked Ecuadorian economist Alberto Acosta with the Latin American Institute of Social Research as he welcomed the initiative by the team of D3E and CLAES researchers Tuesday.

''While the traditional country-risk rating emphasises economic and financial aspects, our index incorporates other dimensions, like social, political and ecological indicators,'' Gudynas explained.

According to the new index, Costa Rica is the only country in Latin America with a reasonable IRPA rating, while at the other end of the spectrum, two of the biggest economies in the region, Argentina and Brazil, are in a situation of outright social and environmental default.

An IRPA rating of between 1.0 and 5.0 is interpreted as reflecting a tolerable level of risk; a rating between 5.01 and 10 indicates a threatening situation; 10.01 to 20 a critical situation; while 20.01 and up means a country is in default. (The worst possible rating is 33).

Brazil was found to have an IRPA rating of 28.12, followed by Argentina (22.72); Peru (17.68), Bolivia (15.01), Colombia (13.86), Chile (12.58), Nicaragua (12.48), Venezuela (11.76), Mexico (11.64), Ecuador (11.45), Honduras (11.06), Uruguay (10.52), Paraguay (9.75), Guatemala (8.89), Panama (7.64), Dominican Republic (7.52) and El Salvador (6.53).

Costa Rica's risk rating of 4.62 makes it the only country in the region with a tolerable level of risk according to the new index, which takes into account economic, social, environmental, institutional and technological indicators, and often bases its assessment on an ''alternative'' perspective or focus.

Thus, for example, a country may have abundant export revenues, but is considered vulnerable if raw materials comprise a large proportion of exports because commodities like soy beans -- based on monoculture farming -- or resources extracted by the mining industry are seen as posing a greater threat to the environment than other kinds of exports.

Economist Rocío Lapitz, another member of the D3E-CLAES team of researchers, noted that the conventional country-risk indicators are designed to evaluate a country's likelihood of default, to indicate to the business community whether it is wise to invest in that country.

But Lapitz said the method of measuring country-risk based on a comparison of the stock market price of a country's sovereign bonds with U.S. Treasury Bonds is only applied to developing countries, not industrialised nations.

''The importance granted to the country-risk rating is due to Latin America's structural weakness with regards to debt. It is an instrument created by financial agencies that evaluate country-risk in accordance with their own objectives. The problem is that our governments themselves use it as a guide,'' Alejandro Villamar, a Mexican activist, told IPS.

''Traditional risk-country analysis does not measure quality of life nor possibilities of development. It assesses ability and willingness to pay, but cannot guarantee that payments of the foreign debt will remain steady, because it is very short-term and tremendously limited,'' said Acosta.

''Putting the priority on repayment of the debt amounts to creating a scheduled social decline,'' the economist argued. As an illustration, he cited the Ecuadorian government of President Lucio Gutiérrez, which assigns surplus oil revenues to debt servicing while cutting back on social spending.

Colombian environmental lawyer Margarita Florez said she found it strange that a nation as violent as civil war-torn Colombia would have such a relatively low traditional country-risk rating.

But she pointed out that several years ago, the government began to indemnify foreign oil companies for the damages caused by dynamite attacks on oil infrastructure by leftist insurgents, in order to maintain a decent rating.

Gudynas said one of the many paradoxes of country-risk analysis is that if a government decides to make its environmental laws more strict, the rating agencies are likely to downgrade the country's credit rating, on the argument that costs will go up for investors.

The index presented by the Uruguayan researchers is also seen as an exercise in democratic participation, because local civil society groups can incorporate additional alternative risk indicators in accordance with the reality of their countries.

Related links:

CLAES - in Spanish

D3E - in Spanish

First Social Forum of the Americas

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