Moody’s Investors Service analyzed five keys that the new management will have to face in economic matters after the runoff between Javier Mileifrom La Libertad Avanza, and Sergio Massa, from Union for the Homeland. For the risk rating agency, “l “The candidates have very different visions on how to address the country’s hyperinflation, but it is uncertain whether their policies will be able to reverse the economic deterioration without having economic and social consequences.”
The five projections of Moody’s
For Moody’s, a macrofiscal adjustment is inevitable regardless of who wins. “The important macroeconomic and fiscal imbalances – which slow down economic activity, distort relative prices and reduce purchasing power – require measures on the part of the candidate who is elected,” they analyzed.
They also stressed that the likelihood of a more politically divided Congress will also influence the next administration’s ability to implement policies that address these issues.
Another projection will be: Economic distortions increase the risk of a sovereign credit event in 2024-2025. “The result of the runoff will determine whether the economy is prepared to face a prolonged period of gradual deterioration, either under the government of Sergio Massa, who will adopt minor corrective measures to avoid political and social unrest, or the government of Javier Milei, who will be limited by governance challenges that will hinder its ambitious reform agenda,” they explained.
On the other hand, they assured that Credit quality of non-financial companies will worsen due to economic problems. In this regard, they indicated that “capital controls make it difficult to refinance external debt, and this increases credit risk.”
Despite this situation, they said, the financial strength of Argentine companies will remain relatively solid, “with a gross debt/ebitda ratio much lower than that of other companies rated Caa. Short-term bond amortizations are manageable, but Refinancing risks will increase in 2025, especially in the case of external debt,” they warned.
In turn, they predicted that Sovereign exposure increases banks’ risk, while political uncertainty puts pressure on deposits. “While there is a risk that profits will not be sufficient to replenish capital in real terms, the banks’ capital and liquidity support their credit quality. Banks have low credit penetration, a contained – although growing – exposure to sovereign public debt and a low level of intermediation of savings in foreign currency,” they described.
Lastly, they remarked, there will be rate changes and subsidies in public services, the energy sector and regional governments. For utilities, they said, “there is some concern around customers’ ability to pay, which will make any structural changes difficult.”
“In the energy sector, Subsidies, government intervention and investment in renewable energy will continue under a Massa government. As for local and regional governments, a Milei government will probably give more fiscal autonomy to the provinces, but their ability to achieve this will be limited,” they launched.
Source: Ambito
