In a complex moment for the Argentine macro player, Massa’s latest play, “forced” exchange of public debt securities in the hands of state entitiesor, newly launched market alerts. Last Friday, Risk rating agency Fitch Ratings has decided to give the country the lowest grade on its scale, C, which implies an imminent risk of default.
This Tuesday, Todd Martinez, senior director and sovereign rating analyst of Fitch Ratings, during his tenure at the IAEF, explained why this decision was taken now and not in the other exchanges promoted by Sergio Massa since his arrival at the Ministry of Economy.
“I was here last week to meet the public and private sectors. We always take one week a year to be full of meetings. It’s always interesting in Argentina, because it’s such an unstable country. It was just a most interesting week in because of the publicity,” Martinez said. “Now we are more concerned about Argentina.” insured.
As Martínez explained, his company took it for granted the government would follow a policy of “improvisation” until the elections and “there was the possibility of a change of government, with adjustments in macroeconomic policies, an improvement in confidence and perhaps some improvements in the energy and lithium sectors, which could put Argentina on a better path.” However, the outlook has changed due to the impact of the drought.
“We still think there will be a policy of improvisation, but in the context of a $20 billion loss, even more bad-for-the-economy policies are needed,” Martinez said and anticipated “a tougher ring for this year”. “Another risk is that the government will continue to liquidate the few assets it has left,” he said, recalling that gross reserves are on the verge of $37 billion and that net reserves “are almost zero”.
“With these two things, the government could avoid a deep crisis, but there is the possibility of some ‘accident’,” said Martínez, who underlined that from this “The legacy will be much heavier for the next government.”
We see more awareness that the next government needs to make a stronger adjustment, that it needs to be less compliant than in 2016, and they may have the will and the legislative capacity to do something like this, but they don’tAre you concerned about the social viability of this type of program?“, said the specialist and underlined the high poverty rates that are already recorded today.
“The adjustment of the last few years has resulted in a huge liquidation of pensions and salaries and we don’t know how much more room there is for an adjustment of this kind“, he warned.
Regarding last week’s default, Martínez said it was not a default event “per se,” but due to the parameters of his rating agency. The swap promoted by the government is, according to Fitch, an “exchange on disadvantageous terms”: the executive explained that although it is a “voluntary” transaction, creditors are forced to enter into this swap for fear that, in the event otherwise, they are not paid.
“The swap was necessary to avoid a traditional default.” Rep. Fitch said and recalled that two local capital market swaps were made earlier this year, the dollar debt repurchase in January and the local market swap in early March, and that these two did not represent a default for the rating agency.
“We didn’t think that without these swaps the government would default. But this is an example of a forced change in creditor terms,” he explained.
Source: Clarin
