S&P warns it could downgrade Argentina’s credit rating
While Argentina has entered into a $50bn International Monetary Fund programme, and president Mauricio Macri has promised to cut the budget deficit, the country’s currency has lost more than half its value this year, as Argentines have rushed to convert their savings into dollars.
That forced the Argentine central bank to lift interest rates by 15 percentage points to a world-topping 60 per cent this week, and spurred the government to ask the IMF to accelerate its disbursement of its aid money.
While the Argentine peso steadied on Friday after a savage drop on Thursday, S&P put the country’s B+ credit rating on “creditwatch negative”, which reflects “the risk of worsening creditworthiness due to potentially weakened implementation of the government’s strategy to stabilise the economy”.
In a statement the rating agency said:
Developments that weaken policy credibility could have a negative impact on inflation expectations, which, in turn, could raise the risk of capital flight and put further pressure on the exchange rate. The combination of persistently high inflation and exchange rate pressures could undermine the government’s fiscal adjustment strategy and increase its debt burden, leading to a downgrade.
S&P said it would keep Argentina’s long-term rating at B+ if the government manages to “successfully reinforce policy credibility”, which would stem the currency’s slump and hopefully lead to an economic recovery in 2019.
Among other things, steps that boost the market credibility of the sovereign’s funding strategy in the coming year could alleviate concerns about the risk of government debt rollover. They could also anchor expectations about inflation and help to reverse recent worsening of inflation dynamics.