S&P lifts Argentina rating out of default after debt revamp

[sandensea]

Global ratings agency S&P upgraded Argentina's long-term sovereign credit rating on Monday, pulling it out of default territory after the South American country successfully restructured over $100 billion in sovereign debt.

"This important step forward provides the opportunity for the government to articulate a broader plan to tackle various post-pandemic macroeconomic challenges," S&P said.

Argentina has over the last week restructured around $65 billion in foreign bonds and over $41 billion in foreign currency debt issued under local law - a big win for the country that has been mired in recession and default.

Argentina now has to turn its attentions to negotiating a new deal with the IMF to replace a failed $57 billion credit facility taken on by former President Mauricio Macri in 2018 (of which $45 billion was borrowed) and to hold talks with the Paris Club groups of lenders.

The nation is also facing its third straight year of recession with forecasts for a 12% contraction this year.

At: https://money.usnews.com/investing/news/articles/2020-09-07/s-p-raises-argentinas-long-term-foreign-currency-rating-to-ccc

Argentine President Alberto Fernández speaks during the opening of a new beer plant south of Buenos Aires - part of an ongoing recovery from the record contraction seen in the early months of the Covid-19 pandemic in March and April.

Fernández's refinancing efforts allowed S&P to lift its default rating on Argentine bonds a year after former President Mauricio Macri defaulted on some of the nation's $325 billion public debt - including peso-denominated debt, in a historic first for the debt-strapped nation.

[Judi Lynn]

1. Wish I was more familiar with these these steps, but It appears they have faith in Fernndez.

I know he was very much involved when President Kirchner managed to pull Argentina out of the deep ditch it was in before he was elected. He does have a sound understanding of how it can be done, right?

It's a horrendous burden President Fernández has assumed by running for office after Macri devastated the country's economy. Thank god he didn't get another chance through re-election, as Argentina's first one-term President in ages.

Thank you for this new information, sandensea.

[sandensea]

2. You're welcome. It's akin to refinancing your mortgage, really.

Macri, you see, had not only tripled the hard currency-denominated public debt (i.e. the public debt payable in dollars and euros, rather than pesos), the debts he took on were mostly of a shorter term.

This forced Argentina to go from setting aside $5 billion annually for foreign interest payments in 2015, to $17 billion last year - and that was just for the foreign creditors.

Refinancing the debt means around $40 billion in savings over the next decade - dollars that the country won't have to scratch together to service these debts.

There are other issues, of course - not least of which is the demand for black market dollars in Argentina itself (understandable to some degree). But refinancing debts will do a lot to ease pressure on dollar reserves - which the country needs to finance imports and, yes, pay off foreign debts.

Hard-currency supply limitations, as you know, are a common and very serious problem across the developing world: since no one takes 3rd world currencies outside their own countries, they must always protect their supplies of dollars (and euros) to meet foreign obligations (imports, debts, etc.).

Thanks as always for your academic interest, Judi. God forbid we ever have to worry about these things in the U.S. (though Bush and Trump certainly tried to put us in that situation).

[Judi Lynn]

3. Your post adds real clarity to some areas I'd always struggled with. Very glad have learned this! ⭐️