Despite the change in the economic cycle in Argentina, and recognize “improvements” especially in the management of public accounts and government policy. zero deficitthe credit agency Moodys decided to keep the country’s rating “at the bottom of the ranking”. Since 2019, the country has had the CA grade, which on Moody’s scale represents the penultimate step in the risk assessment for the various economies. Even if the ratings team admits changes, Doubts about the payment capacity of sovereign bonds remain intact.
Jaime Reusche, Vice President – Senior Credit Officer – Principal Analyst at Moody’s Ratings for the Argentine government’s credit rating, explained Thursday morning at the annual event that the entity holds it The fiscal adjustment was “much larger than we expected,” Javier Milei’s government must do a deeper adjustment in foreign accounts.
This implies a jump in the exchange rate that corrects the “lag” that the local currency has accumulated after last December’s devaluation. “We have seen something similar with the accumulation of reserves in gross terms, but there has not been a sharper and stronger adjustment that would generate greater stability in the external accounts,” he said.
The executive underlined the positive effects of the adjustment in the management of inflation and of the change in monetary policy in the strong reduction of the exchange rate gap, However, he stated that Javier Milei’s economic program lacks an “adjustment of foreign accounts”. At this point he recalled the case of Peru’s stabilization in the 1990s: the country achieved a drastic reduction in inflation, but with a strong jump in the exchange rate.
“In the case of Argentina, as is the picture from last year, we had a fairly large fiscal deficit, a level of inflation and about 19 exchange rates,” he said, noting: “So far this year, the Fiscal adjustment, without a doubt, had a significant impact on the level of inflation and it was an effort that we recognize and that exceeded our expectations. However, the outside we haven’t seen that much devaluation and we still have at least two exchange rates and the level of reserves was not increased“he warned.
Reusche spoke to a room full of market men and women at the Sheraton Hotel in Retiro, where The main concern was when Milei’s economic team will finally decide to break out of the exchange rate trap.. The executive explained that “due to the weakness of net reserves”, the liberalization of the foreign exchange market carries risks from the point of view of holders of Argentine debt. The same thing happens withdollarization.
Later in a press conference, Reusche explained that since the 2019 default, Moody’s said Argentina’s finances “are so tight” that bondholders face a probable default risk. However, he clarified: “When we talk about a default event, the way we looked at it has changed a little bit. With what we saw from the previous government, the most likely thing is that there would be a default or a restructuring. Now , with this new government the conditions have changed radically, but we no longer see a default or a restructuring, but rather a reprofiling, which is the most probable event, what we call a anguished exchange,” he said.
In this way, the rating agency sees it likely that the government will have to sit down to “amicably” renegotiate its debt maturities starting from 2025. “It is likely that, if this happens, the losses will be very limited But from our point of view it would be a failure to pay,” he explained to justify the failure to exchange the Argentine banknote.
Source: Clarin
