Rating agency Fitch said on Thursday that Argentina’s weak credit fundamentals, in terms of both liquidity and solvency, limit the scope for a debt exchange that minimizes losses for investors beyond maturity extensions.
Argentina has been struggling with a major debt crisis after a market crash in August hammered its peso currency and sovereign bonds, forcing it to delay payments on about US$ 100 billion of debt.
Fitch said a deal that offers the country minimal debt relief focused on liquidity rather than sustainability would require too much of a fiscal adjustment to be politically or economically viable.
The passage of such a deal would come with a high risk of renewed debt distress in the future if there is no unforeseen positive economic shock in Argentina, the ratings agency said.
Fitch said it believes a deal that offers permanent debt relief via a haircut or coupon reduction, rather than just postponement of debt service, could be needed to more fully mitigate
Argentina’s debt sustainability challenges.