MercoPress. South Atlantic News Agency
Fitch downgrades Argentina's long term debt, fearing the risk of default
The peso gained 2.75% to trade at 58.12 to the dollar on Friday. On Thursday there was a joint appeal for calm by President Macri and Alberto Fernandez Argentina's Peso ended a tumultuous week on Friday having shed 20% in its value against the dollar as Fitch cut the South American country's long-term debt by two notches, citing increased uncertainty and a rising risk of default.
The peso gained 2.75% to trade at 58.12 to the dollar on Friday, after several days of freefall were halted Thursday following a joint appeal for calm by President Mauricio Macri and his center-left rival Alberto Fernandez.
But the outlook remains uncertain after markets went into turmoil following Macri's crushing defeat by the populist Fernandez in nationwide primary polls on Sunday.
“The Argentine peso has stabilized over the past few trading days but the collapse earlier this week has made a sovereign debt default highly likely,” said analysts Capital Economics in a note.
Ratings agency Fitch downgraded the crisis-hit government's debt rating to “CCC” from “B.”
“The downgrade of Argentina's ratings reflects elevated policy uncertainty following the Aug 11 primary elections, a severe tightening of financing conditions and an expected deterioration in the macroeconomic environment that increase the likelihood of a sovereign default or restructuring of some kind,” Fitch said in its announcement.
Fitch said the center-right's crushing political defeat in the primaries “increases risks of a break from the policy strategy of the current administration of Mauricio Macri guided by a program with the IMF.”
Fernandez, now the clear favorite to unseat Macri in October's presidential election, has questioned the reform program backed by a US$56 billion rescue package from the International Monetary Fund.
The country is currently in a recession and posted 22% inflation for the first half of the year - one of the highest rates in the world - but the IMF said Macri's reform program was beginning to yield results.
Macri reacted on Wednesday by announcing salary hikes and tax cuts in a bid to win back voters with the Oct 27 presidential election looming. Macri said the measures would “benefit 17 million workers and their families and all small and medium-sized businesses, formal and informal, state and private.”
He also announced an unspecified increase in the monthly minimum wage - currently 12,500 pesos, or US$208 - saying it would benefit two million workers.
In Buenos Aires, the sudden crisis left many businesses reeling.
US retailer Walmart, which has 92 branches in Argentina, said it had seen a 15-20 per cent hike in sales volumes between Monday and Wednesday and had not yet increased prices.
“It happens to us when there is a foreign exchange movement and people want to beat any price shift, especially with essentials like oil, sugar, flour, yerba mate and some dairy products,” Walmart official Juan Pablo Quiroga said.
Quiroga said some suppliers had notified the retailer of price increases “from the end of this week or next week.”
Buenos Aires has a fraught history with the IMF, and Fitch said “policy credibility and market access could still be severely tested amid weak economic conditions, high public debt and inflation.”
Argentina defaulted on its debt in 2001 during the worst economic crisis in its history, and it took years before it could restore its credibility in world financial markets.
Fernandez said this week he considered an exchange rate of 60 pesos to the dollar as “reasonable” and said it should no longer fluctuate wildly.
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Read all commentsEnrique,
Aug 17th, 2019 - 11:02 pm +1In a recent thread related to Argentina retaining its B rating https://en.mercopress.com/2019/08/03/s-p-retained-its-b-rating-for-argentine-debt/comments you said “During the last four years, Argentina has been getting closer and closer to Venezuela status”
I pointed out the fact that Argentina's credit rating had improved from SD to B while Venezuela's had decreased from B2 to C in the same time period but you didn't respond. Now that the threat of a FF government has caused Argentina's rating to slip back to CCC (NOT because of anything Macri has done, but simply the threat of his policies being reversed) you are applauding the Argentines “Well done, Argentina”.
So, in the earlier thread you seemed upset that Argentina was moving away from a default situation and now you seem happy that that situation has reversed. So, in spite of what you say, your responses consistently indicate that you seem to think that Argentina getting closer to default is good news. Can you explain your thinking on this one because you aren't making any sense to me on this one?
Your argument seems to be that Argentina became closer to Venezuela under Macri (even though the two country's credit ratings moved in opposite directions) and this why Argentines voted for the politicians who brought the country to a SD rating rather than the one who brought them a B rating and you are now applauding the CCC rating as somehow being an indicator that the Argentines have made a wise decision. In your world, good news under Macri = bad news while bad news at the renewed prospect of CFK = good news. How does your brain reconcile these two thoughts?
@Think
Aug 21st, 2019 - 09:43 pm 0Ha ha muy bueno, buenísimo!
@ZB
Hey, Zaphod, I guess you are upset by what happened on Aug. 16, but I am not that kind of person to come and say “told you so.”
However, please do not put words in my mouth. I do not think I spoke of any potential Argentine default. It is true that the current foreign debt will be trying on the Argentines for quite some time, but I believe Alberto Fernandez has already said he does not support defaulting -- and I agree.
Oh, and I said “well done, Argentina” not because of the 'corrida' but because of the 49-33 that Alberto inflicted on Macrism.
Not the best times to be a Macri supporter.
EM,
Aug 22nd, 2019 - 06:06 pm 0“... I am not that kind of person to come and say “told you so.””
Except you just did.
“However, please do not put words in my mouth. I do not think I spoke of any potential Argentine default.”
No, but you were critical of Argentina's improving credit rating under Macri.
“I believe Alberto Fernandez has already said he does not support defaulting”
Good to hear, but does he have the ability to prevent it? The sudden reversal of Argentina's credit rating after this election has made his job harder.
If FF gain power we will see how Argentina fares and we'll see if it heads in the direction of default...
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