- 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 Aug. 28. This constitutes default under our criteria, and we are lowering the local and foreign currency sovereign credit ratings to 'SD' and the short-term issue ratings to 'D'.
- The administration is also sending legislation to Congress seeking support from the Argentine political class to engage in a re-profiling of the remaining debt, so we are lowering our long-term foreign and local currency issue ratings to 'CCC-' on heightened risk of a default under our criteria.
- As the new terms for short-term debt have become effective already, we plan to raise the sovereign credit ratings from 'SD' on Aug. 30. We plan to raise the long-term sovereign credit ratings to 'CCC-' and the short-term sovereign credit ratings to 'C'.
On Aug. 29, 2019, S&P Global Ratings lowered its sovereign credit ratings on Argentina to 'SD' from a long-term rating of 'B-' and a short-term rating of 'B' (our criteria do not distinguish on short or long term when there is a default). We also took the following rating actions:
- We lowered our short-term issue ratings to 'D' from 'B';
- We lowered our long-term issue ratings to 'CCC-' from 'B-';
- We lowered our transfer and convertibility assessment on Argentina to 'B-' from 'B'; and
- We lowered our national scale rating on Argentina to 'SD' from 'raAA-'and removed it from CreditWatch with negative implications, where we placed it on Aug. 16.
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 Aug. 28. Under our distressed exchange criteria, and in particular for 'B-' rated entities, the extension of the maturities of the short-term debt with no compensation constitutes a default. As the new terms became effective immediately, the default has also been cured. Therefore, we plan to raise the long-term ratings to 'CCC-' and the short-term ratings to 'C' on Aug. 30, in line with our policies.
Lowering the long-term issue ratings on Argentina to 'CCC-' from 'B-' reflects heightened risk of another distressed exchange as the Macri Administration seeks approval from Congress to engineer a possible maturity extension of all long-term debt in the remainder of its current term in office. This action is in line with our 'CCC' rating criteria and distressed exchange criteria as we see the most likely scenario as an extension of maturities, which will not be compensated by the issuer. Alternatively, there are risks associated with failure to advance, and prospects for ongoing stressed market dynamics post the national elections.
We lowered our transfer and convertibility assessment to 'B-' from 'B'. The transfer and convertibility assessment remains higher than the sovereign rating because the government aims to avoid capital controls and preserve international reserves with its action on short-term debt and potential action on long-term debt.
The heightened vulnerabilities of Argentina's credit profile stem from the quickly deteriorating financial environment, the absence of confidence in the financial markets about policy initiatives under the next administration--elections are not until October--and the inability of the Treasury to roll over short-term debt with the private sector.
This has immensely stressed debt dynamics amid a depreciating exchange rate, a likely acceleration in inflation, and a deepening economic recession.
These factors have stressed capacity to pay, leading to the maturity extension of short-term debt.
The challenges confront the ability of both the current administration and the leading presidential candidate to contain market volatility and restore financial and economic stability. (Please see our latest research update on Argentina, titled "Argentina Long-Term Sovereign Ratings Lowered To 'B-' As Market Turbulence Weakens Creditworthiness; Outlook Negative," published Aug. 16, 2019.)
|Economic indicators (%)|
|Nominal GDP (bil. LC)||2,637.91||3,348.31||4,579.09||5,954.51||8,228.16||10,644.78||14,566.56||21,916.55||31,937.90||42,349.65|
|Nominal GDP (bil. $)||581.43||613.32||567.05||644.90||557.20||642.68||518.48||438.33||456.26||529.37|
|GDP per capita (000s $)||13.9||14.5||13.3||15.0||12.8||14.5||11.6||9.7||10.0||11.5|
|Real GDP growth||(1.0)||2.4||(2.5)||2.7||(2.1)||2.7||(2.5)||(2.3)||0.5||2.0|
|Real GDP per capita growth||(2.1)||1.3||(3.6)||1.6||(3.1)||1.0||(3.4)||(3.2)||(0.4)||1.1|
|Real investment growth||(7.1)||2.3||(6.8)||3.5||(5.8)||12.2||(5.8)||(12.0)||2.0||3.5|
|Real exports growth||(4.1)||(3.5)||(7.0)||(2.8)||5.3||1.7||(0.0)||17.0||6.0||4.0|
|External indicators (%)|
|Current account balance/GDP||(0.4)||(2.1)||(1.6)||(2.7)||(2.7)||(4.9)||(5.4)||(0.7)||(1.5)||(2.6)|
|Current account balance/CARs||(2.2)||(13.8)||(10.5)||(23.5)||(19.6)||(39.5)||(32.9)||(3.4)||(7.9)||(13.7)|
|Net portfolio equity inflow/GDP||(0.0)||0.0||0.1||0.1||0.4||0.4||(0.2)||0.0||0.0||0.0|
|Gross external financing needs/CARs plus usable reserves||102.4||110.1||117.3||133.8||136.1||149.9||133.8||109.9||120.5||123.6|
|Narrow net external debt/CARs||88.2||104.6||116.7||154.6||153.6||192.2||213.5||205.7||216.4||199.2|
|Narrow net external debt/CAPs||86.4||91.9||105.6||125.2||128.4||137.8||160.7||199.0||200.5||175.3|
|Net external liabilities/CARs||(28.7)||(37.7)||(37.5)||(51.0)||(56.2)||(20.9)||(45.3)||(21.6)||(13.7)||1.4|
|Net external liabilities/CAPs||(28.1)||(33.1)||(33.9)||(41.3)||(46.9)||(15.0)||(34.1)||(20.9)||(12.7)||1.2|
|Short-term external debt by remaining maturity/CARs||45.8||44.5||46.1||59.9||53.8||72.1||77.1||75.7||88.0||79.1|
|Usable reserves/CAPs (months)||5.2||4.6||3.6||3.6||2.8||3.5||5.1||7.3||7.0||5.9|
|Usable reserves (mil. $)||41,590||29,236||27,799||21,155||32,913||48,505||59,164||55,668||55,386||53,841|
|Fiscal indicators (general government; %)|
|Change in net debt/GDP||6.5||4.0||9.5||18.6||14.7||14.3||39.5||33.6||14.2||10.2|
|Monetary indicators (%)|
|GDP deflator growth||22.3||23.9||40.3||26.6||41.1||26.0||40.4||54.0||45.0||30.0|
|Exchange rate, year-end (LC/$)||4.90||6.50||8.51||13.10||15.89||18.65||37.60||63.00||75.00||85.00|
|Banks' claims on resident non-gov't sector growth||30.9||31.0||20.2||36.7||31.4||51.3||33.1||12.6||45.7||37.6|
|Banks' claims on resident non-gov't sector/GDP||14.3||14.7||12.9||13.6||12.9||15.1||14.7||11.0||11.0||11.4|
|Foreign currency share of claims by banks on residents||N/A||N/A||N/A||N/A||N/A||N/A||N/A||N/A||N/A||N/A|
|Foreign currency share of residents' bank deposits||8.4||7.5||8.0||11.8||20.6||23.8||31.4||52.7||52.7||52.7|
|Real effective exchange rate growth||(14.4)||(3.7)||5.3||(21.7)||13.5||(6.5)||34.7||N/A||N/A||N/A|
|Definitions: Savings is defined as investment plus the current account surplus (deficit). Investment is defined as expenditure on capital goods, including plant, equipment, and housing, plus the change in inventories. Banks are other depository corporations other than the central bank, whose liabilities are included in the national definition of broad money. Gross external financing needs are defined as current account payments plus short-term external debt at the end of the prior year plus nonresident deposits at the end of the prior year plus long-term external debt maturing within the year. Narrow net external debt is defined as the stock of foreign and local currency public- and private-sector borrowings from nonresidents minus official reserves minus public-sector liquid assets held by nonresidents minus financial-sector loans to, deposits with, or investments in nonresident entities. A negative number indicates net external lending. N/A--Not applicable. LC--Local currency. CARs--Current account receipts. FDI--Foreign direct investment. CAPs--Current account payments. e--Estimate. f--Forecast. The data and ratios above result from S&P Global Ratings' own calculations, drawing on national as well as international sources, reflecting S&P Global Ratings' independent view on the timeliness, coverage, accuracy, credibility, and usability of available information.|
Ratings Score Snapshot
|Argentina Ratings Score Snapshot|
|Key rating factors||Score||Explanation|
|Institutional assessment||6||Policy choices likely weaken capability and willingness to maintain sustainable public finances and balanced economic growth, and thus, debt service. Future policy responses are difficult to predict because of a highly polarized political landscape.|
|Debt payment culture is weak.|
|Economic assessment||5||Based on GDP per capita ($) as per Selected Indicators in Table 1.|
|Weighted average real GDP per capita trend growth over a 10-year period is -0.8%, which is well below sovereigns in the same GDP category.|
|External assessment||6||Based on narrow net external debt and gross external financing needs as per Selected Indicators in Table 1.|
|There is a risk of marked deterioration in the cost of or access to external financing.|
|Fiscal assessment: flexibility and performance||6||Based on the change in net general government debt (% of GDP) as per Selected Indicators in Table 1.|
|Fiscal assessment: debt burden||5||Based on net general government debt (% of GDP) and general government interest expenditures (% of general government revenues) as per Selected Indicators in Table 1.|
|Over 70% of gross government debt is denominated in foreign currency.|
|Monetary assessment||5||Argentina’s exchange-rate regime is a managed float.|
|Persistently high inflation, as per Selected Indicators in Table 1. The central bank has limited independence due to perceived political interference. Argentina has a small domestic capital market and a low level of credit to GDP.|
|Indicative rating||b-||As per Table 1 of "Sovereign Rating Methodology."|
|Notches of supplemental adjustments and flexibility||(5)||Argentina is currently in selective default.|
|Notches of uplift||0||Default risks do not apply differently to foreign- and local-currency debt|
|S&P Global Ratings' analysis of sovereign creditworthiness rests on its assessment and scoring of five key rating factors: (i) institutional assessment; (ii) economic assessment; (iii) external assessment; (iv) the average of fiscal flexibility and performance, and debt burden; and (v) monetary assessment. Each of the factors is assessed on a continuum spanning from 1 (strongest) to 6 (weakest). S&P Global Ratings' "Sovereign Rating Methodology," published on Dec. 18, 2017, details how we derive and combine the scores and then derive the sovereign foreign currency rating. In accordance with S&P Global Ratings' sovereign ratings methodology, a change in score does not in all cases lead to a change in the rating, nor is a change in the rating necessarily predicated on changes in one or more of the scores. In determining the final rating the committee can make use of the flexibility afforded by §15 and §§126-128 of the rating methodology.|
- General Criteria: Methodology For National And Regional Scale Credit Ratings, June 25, 2018
- Criteria | Governments | Sovereigns: Sovereign Rating Methodology, Dec. 18, 2017
- General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017
- General Criteria: Post-Default Ratings Methodology: When Does S&P Global Ratings Raise A Rating From 'D' Or 'SD'?, March 23, 2015
- General Criteria: Methodology: Timeliness Of Payments: Grace Periods, Guarantees, And Use Of 'D' And 'SD' Ratings, Oct. 24, 2013
- General Criteria: Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 1, 2012
- General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009
- General Criteria: Methodology: Criteria For Determining Transfer And Convertibility Assessments, May 18, 2009
- General Criteria: Rating Implications Of Exchange Offers And Similar Restructurings, Update, May 12, 2009
- Banking Industry Country Risk Assessment Update: August 2019, Aug. 27, 2019
- Argentina Long-Term Sovereign Ratings Lowered To 'B-' As Market Turbulence Weakens Creditworthiness; Outlook Negative, Aug. 16, 2019
- Sovereign Ratings History, Aug. 7, 2019
- Argentina Long-Term 'B' Sovereign Credit Ratings Affirmed; Outlook Remains Stable, Aug. 1, 2019
- Banking Industry Country Risk Assessment: Argentina, July 30, 2019
- Global Sovereign Rating Trends: Midyear 2019, July 25, 2019
- S&P Global Ratings' National And Regional Scale Mapping Specifications, June 25, 2018
- 2018 Annual Sovereign Default And Rating Transition Study, March 15, 2019
- Sovereign Debt 2019: Latin American And Caribbean Commercial Borrowing Is Likely To Remain Stable At $322 Billion, Feb. 21, 2019
- Argentina Long-Term Ratings Lowered To 'B'; Outlook Is Stable, Nov. 12, 2018
- Sovereign Risk Indicators, also available at www.spratings.com/sri
In accordance with our relevant policies and procedures, the Rating Committee was composed of analysts that are qualified to vote in the committee, with sufficient experience to convey the appropriate level of knowledge and understanding of the methodology applicable (see 'Related Criteria And Research'). At the onset of the committee, the chair confirmed that the information provided to the Rating Committee by the primary analyst had been distributed in a timely manner and was sufficient for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the recommendation, the Committee discussed key rating factors and critical issues in accordance with the relevant criteria. Qualitative and quantitative risk factors were considered and discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to articulate his/her opinion. The chair or designee reviewed the draft report to ensure consistency with the Committee decision. The views and the decision of the rating committee are summarized in the above rationale and outlook. The weighting of all rating factors is described in the methodology used in this rating action (see 'Related Criteria And Research').
|Transfer & Convertibility Assessment||B-||B|
|Downgraded; CreditWatch/Outlook Action|
|Sovereign Credit Rating||SD/D||B-/Negative/B|
Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.
|Primary Credit Analyst:||Lisa M Schineller, PhD, New York (1) 212-438-7352;|
|Secondary Contacts:||Joydeep Mukherji, New York (1) 212-438-7351;|
|Sebastian Briozzo, Buenos Aires (54) 114-891-2185;|
|Media Contact:||Miriam Hespanhol, New York + 1 (212) 438 1406;|
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