News Center

Argentina's Credit Outlook Cut to Stable by Moody's
Bloomberg
August 15, 2008

By Drew Benson

Argentina's foreign debt rating outlook was cut to stable from positive by Moody's Investors Service, which cited ``heightened political volatility.''

Moody's left Argentina's rating at B3, six levels below investment grade. The company said in a statement that ``further downward ratings pressure is unlikely in the short term.''

Gabriel Torres, a New York-based analyst at Moody's, said on Aug. 8 that the company was considering cutting Argentina's outlook. Three days later, Standard & Poor's lowered the South American country's rating to B, five levels below investment grade, from B+.

Argentine President Cristina Fernandez de Kirchner lost a key grain export tax vote in the Senate on July 17 after a four- month farmers' strike that led to food shortages and higher inflation eroded her support. Moody's says it expects growth to slow, crimping tax revenue as Fernandez boosts spending.

``If revenues fail to keep up with spending, the government has little political leeway to sustain budget surpluses by cutting expenditures,'' Torres said in today's statement. ``At the same time, inflation is exacerbating political tensions, and a lack of credible official data on inflation raises questions about the government's ability and willingness to pay its debt.''

Government data puts annual inflation at 9.1 percent. S&P said on Aug. 11 that private estimates place it above 20 percent.

Uruguay Decouples

Moody's also said that it placed neighboring Uruguay's foreign- and local-currency bond ratings on review for a possible increase, citing strong growth and credit profile improvements. Argentina's 2001 debt default and financial meltdown had undercut Uruguay's smaller economy.

``In the past few years, Uruguay has been able to diversify its economy away a bit from the Argentine economy,'' expanding its base of trading partners worldwide, said Pablo Morra, an economist with Goldman Sachs Group Inc. in New York. ``Uruguay can still do well even if Argentina weakens significantly.''

Argentine bonds climbed for a fourth day, buoyed by a government plan to repurchase debt. The government started the program after its bonds plummeted last week following an Aug. 2 news conference in which Fernandez defended government policies and inflation data.

The yield on Argentina's inflation-linked peso bonds due in December 2033 fell 13 basis points, or 0.13 percentage point, today to 9.896 percent, according to Citigroup Inc.'s local unit.