MercoPress. South Atlantic News Agency

Argentina: Moody downs debt 6 levels below invest grade

Moody's Investors Service

Argentina's foreign debt rating outlook was cut on Thursday to stable from positive by Moody's Investors Service, which cited “heightened political volatility”. This means Argentina's rating stands at B3, six levels below investment grade.

However Moody's added in a statement that "further downward ratings pressure is unlikely in the short term", given the Central Bank's significant international reserves which stand al almost 50 billion US dollars.' Moody's analyst Gabriel Torres a week ago anticipated that the company was considering cutting Argentina's outlook. Three days later, Standard & Poor's lowered Argentina's rating to B, five levels below investment grade, from B+. "If revenues fail to keep up with spending, the government has little political leeway to sustain budget surpluses by cutting expenditures" said Torres in the statement. "At the same time, inflation is exacerbating political tensions, and a lack of credible official data on inflation raises questions about the government's ability and willingness to pay its debt", added the release. Argentine president Cristina Fernandez de Kirchner lost a key grain export tax vote in the Senate on July 17 after a four- month farmers' strike that led to food shortages and higher inflation eroded her support. Moody's says it expects growth to slow, crimping tax revenue as Mrs. Kirchner boosts spending. The government's statistics office puts annual inflation at 9.1%, but according to private estimates, 25 to 30% is a fairer guess. After B3 comes Caa but according to Mr. Torres this rating is reserved for countries in default or about to default, "which is not the case for Argentina". Nevertheless Fitch has Argentina categorized as "restricted default". Moody's also said that it placed neighboring Uruguay's foreign and local-currency bond ratings on review for a possible increase, citing strong growth and credit profile improvements. Argentina's 2001 debt default and financial meltdown had undercut Uruguay's smaller economy. "In the past few years, Uruguay has been able to diversify its economy away a bit from the Argentine economy" expanding its base of trading partners worldwide said Pablo Morra, an economist with Goldman Sachs Group Inc. in New York. "Uruguay can still do well even if Argentina weakens significantly". Argentine bonds climbed for a fourth day, buoyed by a government plan to repurchase debt. The government started the program after its bonds plummeted last week following an August 2 news conference in which Mrs. Kirchner defended government policies and inflation data. The yield on Argentina's inflation-linked peso bonds due in December 2033 fell 13 basis points on Thursday to 9.896%, according to Citigroup Inc.'s local unit