Standard & Poor's Global Ratings cut Argentina’s foreign and local debt to “selective default” after the government said it would postpone payments on as much as US$101 billion of debt as money poured out of the country.
“Following the continued inability to place short-term paper with private-sector market participants, the Argentine government unilaterally extended the maturity of all short-term paper on August 28,” the ratings agency said in a statement. “This constitutes default under our criteria.”
The government will postpone US$7 billion of payments on short-term local notes held by institutional investors this year and will seek the “voluntary reprofiling‘’ of US$50 billion of longer-term debt, Economy Minister Hernán Lacunza said Wednesday evening. It will also start talks over repayments on US$44 billion it has received from the IMF.
Argentina’s peso and bonds have tumbled after opposition leader Alberto Fernández routed President Mauricio Macri in the August 11 primary vote. The peso is down more than 20 percent since then and bonds have hit record lows, with investors pricing in an over 90 percent chance of default in the next five years.
The upset in the primary election had already led two of the three biggest ratings companies to downgrade Argentina. On August 16 Fitch cut the country’s long-term issuer rating by three notches to 'CCC' from 'B,' while S&P lowered the country’s sovereign rating to 'B-' from 'B' and slapped a negative outlook on it.
IMF officials who were visiting Argentina at the time of the announcement said they are analyzing the measures.
“Staff understands that the authorities have taken these important steps to address liquidity needs and safeguard reserves,” the lender said in a statement.
The fund was expected to disburse another US$5.3 billion in the next few months from a record US$56-billion agreement, though that’s far from certain given the current crisis.
Without the loan disbursement and cut off from global money markets, the country was facing a serious financing challenge. Morgan Stanley estimated Argentina needed US$12.9 billion for repayments on Treasury bills and bonds in the last four months of the year. Most of those payments have now been pushed back to next year.
Meanwhile, the country’s dollar buffers are withering. Foreign exchange reserves have fallen to US$57.5 billion, and Capital Economics estimates that net reserves – which exclude deposits at commercial banks – are currently at US$19 billion, down from US$30 billion in mid-April. That only covers a quarter of Argentina’s gross external financing needs of US$100 billion, which includes debt maturing over the next year plus the current account deficit.