Argentina's credit rating cut to Selective Default by S&P
S&P Global Ratings cut Argentina’s foreign- and local-currency credit ratings to “selective default” after Argentine President Mauricio Macri issued a decree delaying payments on as much as $101 billion of debt.
“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,” the ratings firm said in a statement.
“This constitutes default under our criteria.”
The downgrade was temporary, however. Since new terms for the short-term debt came into effect immediately, S&P considers the default “cured” and will raise Argentina‘s long-term sovereign credit rating to CCC- on Aug. 30, it said.
The government will meanwhile postpone $7 billion of payments on short-term local notes held by institutional investors this year and will seek the “voluntary reprofiling” of $50 billion of longer-term debt, Economy Minister Hernán Lacunza said.
Hot potato
The rescheduling raised concerns locally over its effect on the national social security fund (FGS) and mutual funds, which have billions in short-term notes affected by postponed payments.
Morgan Stanley estimated Argentina needed $12.9 billion for repayments on bills and bonds in the last four months of the year. Most of those payments have now been pushed back to 2020 - when a new administration led by center-left Peronist Alberto Fernández is expected to be in office.
Tierra del Fuego Governor Rosana Bertone described the situation Fernández is likely to inherit in December as a “hot potato.”
Lacunza will also start talks over repayments on $45 billion borrowed from the IMF as part of a record, $57 billion bailout granted on June 2018.
Argentina has been largely cut off from global money markets since the April 2018 implosion of a domestic carry-trade debt bubble, promoted by Macri and known as the “financial bicycle.”
The peso has since lost two-thirds of its value, with GDP down 6.9% despite a record harvest.
At: https://www.bloomberg.com/news/articles/2019-08-29/argentina-s-rating-cut-to-selective-default-by-s-p
A cyclist rides down a street in the financial district in Buenos Aires.
The collapse of a $60 billion carry-trade debt bubble known locally as the “financial bicycle” led to Argentina's being mostly shut off from global bond markets - and what's widely considered a “disguised default.”
In effect, an inability to service its $200 billion public foreign debt (which more than doubled in just 3½ years) disguised only by $45 billion in IMF loans since June 2018.
The bailout was reportedly granted at the insistence of U.S. President Donald Trump, who shares both an ideological affinity and a 35-year friendship with Macri.
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