MercoPress. South Atlantic News Agency

Fitch ups Argentina's grading by one notch

Disinflation under La Libertad Avanza “already exceeded our previous expectations,” Fitch underlined

Fitch Ratings upgraded Argentina's long-term foreign currency debt rating from CCC to CCC+, citing the rapid economic recovery under President Javier Milei. Key factors include a new US$ 20 billion International Monetary Fund (IMF) agreement, with an initial US$ 12 billion disbursement boosting reserves to US$38 billion, and the liberalization of the exchange market an AR$ 1,000 / AR$ 1,400 band per US dollar.

The agency noted progress in disinflation and credit reactivation, exceeding expectations. However, challenges remain, including uncertainties in reserve accumulation and costly external market access.

The upcoming 2025 mid-term elections are seen as a critical test for Milei's reforms, potentially impacting reserves and market stability.

“The improvement of Argentina's rating reflects the launch of a new IMF program and an important liberalization of the exchange market, which has reinforced external liquidity and the durability of President Javier Milei's economic stabilization program,” Fitch highlighted.

In addition, it pointed out that disinflation under La Libertad Avanza “already exceeded our previous expectations and should receive an additional boost from these policy changes.”

“The authorities dismantled exchange controls, preserving only some to decompress pending demand for foreign exchange, and signaled that they do not intend to buy foreign exchange within the band, reflecting their preference for a strong currency as a disinflation anchor,” Fitch also mentioned.

“Reserve accumulation is not assured under the new exchange rate regime, due to the authorities' preference for a strong currency, while access to external markets remains prohibitively costly,” it further noted.

“The mid-term elections in October are likely to be a key determinant of international reserves dynamics and market access, as they represent a crucial test of support for Milei's economic program, as well as a source of potential volatility during the campaign,” it stressed.

“The Argentine economy is achieving a rapid recovery, driven by disinflation, which is increasing real incomes, and the reactivation of credit intermediation after a long period of crowding out public indebtedness,” Fitch concluded.