Following President Mauricio Macri’s economic policies and the deal with the holdout funds, Argentina will help to bring stability and a larger economic growth to Latin America, now facing a declining economy mainly because of Brazil’s downfall, representatives from the International Monetary Fund said.
“Speaking as a Latin American citizen, it’s good to have important countries such as Argentina making things right, as it will lead to a larger growth and stability in the region,” Mexican Central Bank head Agustín Carstens said, who presided the IMF’s financial committee at the Fund’s spring summit with the World Bank.
Carstens gave the closing press conference of the summit alongside IMF’s Managing Director Christine Lagarde, who said it was “likely” that a delegation of the IMF would travel to Buenos Aires in September to work on a report over the country’s economy — known as Article IV. The last time such analysis was done was in 2006.
“We are pleased to see what has happened in Argentina on the last months. Argentines will be the immediate beneficiaries,” Carstens said, adding that the austerity policies implemented by Macri will be “hard to process.”
“The government is trying to build a strong base, which will then lead to a sustainable growth, stability and a much better life quality in Argentina,” he added.
Carstens statements follow the statement issued on Friday by the Group of 20 nations, which congratulated the country’s progress on the litigation with the holdout funds.
In another piece of good news, following the upcoming end to Argentina’s litigation with the funds, credit rating agency Moody’s upgraded last Friday the Republic’s issuer rating a notch, going from Caa1 to B3 with a “stable” outlook on its rating.
The agency also improved from Caa1 — which means to be in default — to B3 — which means “very speculative credit” — the rating on Argentina’s foreign legislation and restructured local legislation foreign currency obligations. The same rating is shared by Ecuador, Jamaica, Zambia and Uganda.
Moody’s rating upgrade is good news for the bonds to be issued by Argentina to pay the holdouts, which could appeal to more investors thanks to the better rating. Nevertheless, the upgrade may not be enough to secure a lower interest rate for the bond issuance, which would be around eight percent.
“Our expectation is that Argentina will settle holdout creditor claims which will result in a lifting of court injunctions and clear the way for Argentina to access international capital markets,” Moody’s said. “The likelihood that Argentina will make payments to restructured bondholders increased significantly following the 13 April US circuit court ruling in favor of Argentina.”
“Argentina has reached agreements with several, but not all, of the litigating holdouts, and now faces payments of over US$8 billion. Although legal, operational and market related risks remain that could delay the bond issuance required to meet those payments we believe the most likely scenario is that Argentina will pay litigating bondholders in the coming days,” Moody’s said.
“This will allow the lifting of the US court injunctions shortly thereafter, in turn allowing Argentina also to pay more than US$2 billion in debt payments to restructured bondholders blocked since 2014,” it added.
Likewise Moody's praised president Mauricio Macri's economic policies. Argentina is on a path to growth and stability, the agency said, praising the elimination on transport and energy subsidies, the elimination of foreign currency restrictions and the lower import and export taxes.
“Since taking office, the Macri administration announced a series of policy adjustments designed to reduce the country’s economic distortions and set the economy on a path to growth and stability,” Moody’s said. “A resolution to the legal problems and the lifting of capital controls will assist in increasing capital inflows and investment, and increased economic activity.”
The country’s economy would drop one percentage point this year due to the high deficit and inflation but would return to growth in 2017 thanks to a larger investment, the credit agency said. Argentina’s inflation is “among the highest of all rated sovereigns,” Moody’s pointed out, adding that there are no “reliable” numbers yet as the government is working to “restore the quality” of the country’s statistics.
Two months ago, credit rating agency Standard & Poor’s raised Argentina's long-term and short-term sovereign credit ratings in pesos by one notch and said a deal with the holdout funds would lead to improve the selective default on the country’s foreign currency ratings.
If Argentina solves its default through “payment, exchange or other settlement,” the agency had vowed to reassess the country’s rating and most likely raise it to CCC or B categories.
The final decision will depend on “the government’s ability to implement its economic reforms and on any possible lingering legal threats that could impair its ability to service future debt,” S&P had said.