The Daily Update: Argentina's Woes

Yesterday the rating agency Fitch reaffirmed Argentina’s credit rating as CCC reflecting the persisting difficulty in its debt repayment capacity following its bond restructurings in September last year. This along with the acute political uncertainty going forward clouds any prospects for an improvement.

In its rating action commentary Fitch noted the key drivers were ‘Sovereign foreign currency liquidity constraints persist despite the relief in near-term commercial debt service offered by the bond restructurings, as central bank (BCRA) reserves have dwindled, and market access has not been restored. The current heterodox policy mix does not appear sustainable for long, notwithstanding better terms of trade that could support its viability in the near term ahead of October 2021 legislative elections. Prospects for a durable policy shift that could support a stronger and more stable medium-term growth path remain uncertain and could be conditioned by the election outcome’.

The imminent debt payments due to both the Paris Club and the IMF along with negotiations to reschedule them have highlighted the continuing risks. Both lenders and Argentina must agree to a new program to reschedule USD45bn debt from the defunct Stand-By Arrangement, of which USD3.8bn comes due later this year, before USD18.1bn next year. However, it has been reported that officials at the IMF may see some benefit in delaying any restructuring agreement with Argentina until after the nation’s midterm election in October. Those close to the talks believe that it would be preferable to get a deal struck ASAP, however, believe Argentina could take more ownership and make bigger policy commitments once the pressure of the election is off.

According to the IMF, its top priority is for Argentina to design a deal that it can honour and that returns it to growth. They say past performance is no guarantee of the future, however with Argentina’s long history of defaulting, pole and barge comes to mind for us here at SSC.