The risk rating agency Moody’s raised this wednesday the rating cap in local and foreign currency of Argentina to reflect the “greater predictability and consistency of the country’s economic policy.”
The rating agency clarified that raised the local and foreign currency rating ceilings to B3 and Caa1, respectively; although “this decision does not imply an increase or improvement of Argentina’s sovereign rating, which is currently located at Ca, but only the country’s ceilings were raised (which does not imply an improvement in the Government’s credit rating).”
To argue its decision, Moody’s said that President Javier Milei’s measures have led to “a rapid reduction of the monetary and fiscal imbalances that were fueling very high inflation”. Debt in local currency went from B3 to Caa1 and that of foreign currency from Caa1 to Caa3.
“The government’s policy has been oriented towards a reduced role of the State in the economy and less interventionist policies that suggest a lower probability of transfer and convertibility risks in the event of a sovereign default,” Moody’s indicated.
He also said that the actions of the Government of Javier Milei to “removing restrictions on cross-border payments and exchange rate convertibility have increased the availability of foreign currency liquidity in the country, despite the low capital account openness.”
“Policy has been oriented towards a reduced role of the State in the economy and less interventionist policies that suggest a lower probability of transfer and convertibility risks in the event of a sovereign default,” he pointed out.
Moody’s explained that the improvement in the credit rating in local currency balances the greater predictability of the Government’s actions in the economy and the financial system, against the weak stability of the external balance of payments.
“The one-level gap between the foreign currency ceiling and the local currency ceiling reflects better policy effectiveness and relatively low external debt, balanced by low capital account openness”he indicated.
There is no improvement in Argentina’s sovereign rating
“The country ceilings are always higher than the sovereign rating because they precisely establish a limit for all those debt issuers that are not the sovereign (companies, banks, etc.) and measure the macro risks to which said issuers are exposed. A In turn, country ceilings establish a limit to the maximum rating that issuers within the country can access,” it was clarified.
In other words, the decision made by Moody’s implies an improvement for the debt-taking conditions of other issuers, but does not imply any change for the sovereign or its rating.
Challenge for large maturities
This Thursday, the Government will face the payment of the first of the major payments scheduled for this year. The obligation, which amounts to US$4,341 million, corresponds to bonds restructured in 2020 by former Minister of Economy Martín Guzmán, and includes both capital and interest.
The market expects the Treasury to comply without problems with this obligation, amid greater investor optimism towards Argentina, which is palpable in the lowering of country risk – pierced 600 points and was at the lowest level since August 2018.
The announcement of a Repo credit for US$1,000 million generated a positive impact on the market and left country risk on the verge of drilling a new symbolic value, which brings it closer to more favorable rates to access international financing.
Among the bonds that expire this Thursday are the Bonares (AL29, AL30, AL35, AL38 and AL41) and Globals, denominated in euros (GE29, GE30, GE35, GE38, GE41 and GE46) and in dollars (GD29, GD30, GD35, GD38 and GD41).
Source: Ambito
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