MercoPress. South Atlantic News Agency

Risk agencies caution about economic policy changes expectations in Argentina

Moody’s does not discard President Cristina Fernandez re-election chances

Concern that Argentina’s government is reporting unreliable economic data is keeping Moody’s Investors Service from boosting the nation’s credit rating, said Patrick Esteruelas, an analyst with the company.

Argentina is rated six levels below investment grade by Moody’s Investors Service at B3. Standard & Poor’s raised the South American nation’s rating one level to B on September 13, matching a July increase by Fitch Ratings and in line with Belize, Honduras and Kenya.

“Argentina’s fundamentals support an upgrade” Esteruelas said at an Emerging Markets Trade Association event in New York. “What is holding back Argentina’s rating is frankly issues over institutional strength, issues over manipulation of data, how that raises questions on its willingness to pay, and of course the ongoing arrears with the Paris Club.”

While the market is betting the death of former president Nestor Kirchner increased the chances of a change in government, it may instead strengthen the administration of his wife, President Cristina Fernandez”, Esteruelas said.

Fernandez “was arguably the more competitive of the two, with much lower rejection numbers,” Esteruelas said. “Former president Kirchner’s grip had weakened.”

“The market consensus is that the tragic death of Kirchner has increased the possibility that we can have a regime change that can result in improvement in the policy mix of Argentina, but we hold a more careful view,” he added, arguing that a positive international environment can increase the re-election chances of President Cristina Fernandez.

Moody’s hasn’t changed Argentina’s rating since raising it from Caa1 in 2005, when the country reached an initial restructuring settlement following its record default on 95 billion US dollars of sovereign bonds in 2001.

Argentina’s debt is undervalued relative to Brazil’s, Hans Humes, president of Greylock Capital Management, said at the same event. “Most elements are there for Argentina to be in much better shape in the medium term,” Humes said. “It needs to be a conversion, there is no question.”

Argentina’s outlook is better than that of Venezuela, which is rated B2, one level higher, at Moody’s, and the nation’s medium- to long-term prospects are “extremely good,” Humes said.

In support of this view a panel of Argentine leading stocks came to the end of an improved week with new increases and gains. The Merval benchmark index hit its 12th record by inching 0.7% up and standing at 3,340.54 points.

The Merval has so far risen 22.1% in November. In the meantime, the country-risk level continued dipping under 500 points in the JP Morgan index and went 2.4% down. Meanwhile, the US currency traded for $3.98/ $3.94, remaining unchanged.

On the other hand Economy minister Amado Boudou who seems to have consolidated his position following rumours of his removal said that the Argentine government keeps working on the debt restructuring with international organizations, but on its terms.

“A renegotiation of Argentina's debt with the Paris Club of wealthy creditors nations will never be done with the International Monetary Fund in the middle” Boudou emphasized speaking this week at a conference at Buenos Aires University (UBA).