MercoPress. South Atlantic News Agency

Moody's upgrades Argentina's rating with positive shifting

“The government's macroeconomic adjustment program has not yet generated an endogenous accumulation of reserves,” Moody's warned

Moody's has raised Argentina's foreign and local currency credit rating from Caa3 to Caa1, also shifting the outlook from “stable” to “positive.” This upgrade reflects Moody's view that Argentina's broad liberalization of exchange and capital controls, coupled with a new program with the International Monetary Fund (IMF), will improve the availability of foreign currency and ease pressure on external finances.

Key factors driving the upgrade include the new IMF program, which involves substantial disbursements (US$12 billion already transferred, US$3 billion pending, and an additional US$6.1 billion from international banks), is expected to bolster Argentina's reserves.

In addition, Moody's positively assessed the country's macroeconomic improvements, with a decline in inflation, a return to economic growth (5.9% in Q1 2025 after six quarters of decline), and a fiscal balance that marks a departure from historical deficit financing by the Central Bank (BCRA).

The credit rating agency also took into account the gradual elimination of currency controls and the move to a managed float scheme for the peso as positive steps towards normalizing access to foreign currency.

Despite the upgrade, Moody's is aware that challenges persist, with the current accumulation of international reserves still largely depends on external disbursements rather than endogenous generation, which poses a major concern. Hence, a rapid and complete liberalization of the foreign exchange market could potentially reignite macroeconomic imbalances if not managed carefully.

Argentina still faces structural weaknesses such as investment barriers, lack of hard currency savings, labor market rigidity, inequality, and dependence on agriculture.

Moody's also highlighted that governance issues continue to have a significant impact on Argentina's credit profile, with unpredictable fiscal and monetary policies historically leading to economic imbalances.

”The upgrade reflects our view that the broad liberalization of exchange controls and, to a lesser extent, capital controls, together with a new program with the International Monetary Fund (IMF), support the availability of foreign currency liquidity and ease pressure on external finances,“ Moody's argued.

”Fiscal balance represents a break with the long history of fiscal dominance and deficit financing by the Central Bank,“ the rating agency noted, adding that these changes ”suggest that the current recovery is likely to be more durable.“

But ”so far, the government's macroeconomic adjustment program has not yet generated an endogenous accumulation of reserves.”