The rating agency remarked that the market’s concern is the debt in pesos and the financing capacity of the fiscal deficit in an election year.
“The risk that we see has to do with the macroeconomic impact. When the Central Bank pays debt, it creates those pesos. That creates more pesos in the market that it is forced to sterilize. What we are seeing is that the amount of debt of the Central Bank as against the economy or monetary base it has jumped. Against the economy, in 2020 it was 5% of the BI today it is above 10%, it is an important jump. With monetary base, it jumped twice the base money,” warned Gabriel Torresvice president and senior analyst at Moody’s for Argentina.
“The scenario of Argentina at the end of 2023 It is one from which more or less it is possible to “get out” without everything exploding. In this framework, he clarified that “exploiting” implies that inflation jumps to 150% and that it affects the macroeconomy. Although this scenario is the most pessimistic, they assured that “today we do not see that risk” but it is not ruled out. “The most immediate risk is in pesos, not in dollars.”
The volume of central bank interest-bearing debt represents another challenge for debt in government weights. The large volume of central bank debt will intensify any currency crisis, as creditors of peso debt choose to change the monetary composition of their portfolios and drive up the exchange rate.
“As inflation is already close to 100%, a sudden currency crisis could lead the central bank and the government to freeze or confiscate deposits and savings in pesos to limit pressures on the exchange rate.”, stated Gabriel Torres, Vice President – Senior Credit Officer of Moody’s Investors Service. Likewise, he adds “although today we see this as a low probability scenario, Argentina has already implemented this type of policy to face periods of very high inflation.”
Regarding the debt in dollars, the representative of Moody’s indicated that Argentina should not have problems since it kicked forward the payments. “Our vision in debt in dollars that Argentina will have no choice but to restructure the debt in 2024-2025 if it fails to improve market access.”
Electoral scenario: does the perspective change if the opposition wins?
For Gabriel Torres, there would not be a change in qualification for the mere fact that the opposition wins the elections. “Opposition by itself does not change credit risk. I believe that the fundamental issue to improve ratings is that the markets believe that debt payment is more likely and allow refinancing.”
And he compared the electoral scenario with that of 2015: “in the case of the previous transition, the improvement of the perspective of change -2015- already began in 2013. The probability that the opposition wins is higher than it was in 2013 -2014 based on surveys.However, the market is not reacting like that.”
paris club
At the end of October, the government reached an agreement “successfully” with the Paris Club for a debt of some US$2.4 billion. One of the objectives that was achieved was to extend the repayment terms, a reduction in the interest rate and the incorporation into the agreement of US$430 million already paid in two payments in February 2022 and July 2021.
The approval of the second revision of the current program with the IMF, which was formally completed on October 7, was key to advancing in the negotiations, since for the Paris Club it is a basic condition (not written), to evaluate the performance and policies for the refinancing of Argentina’s debt with said multilateral organization.
In this context, Moody’s clarified that this agreement is “positive” but “it will not change the possibility of borrowing in the markets” and anticipated that the biggest challenge for 2023 is “avoid the inflationary shock, I think it will be able to reach next year without actually restructuring”.
The debt with the International Monetary Fund
In relation to the role that the International Monetary Fund (IMF) will have for 2023, the risk of non-compliance with goals is not expected even if “they are not met exactly”. Meanwhile, they do not rule out that the organization led by Kristalina Georgieva continues to support Argentina. “It’s going to be a tough year and they’re hoping it’s handled without a blowout.”
Source: Ambito
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