Aug. 11 (Bloomberg) -- Argentina's foreign debt rating was cut by Standard & Poor's on concern slowing economic growth will crimp tax revenue while mounting investor mistrust in inflation data erodes confidence in the government.

S&P lowered Argentina's rating to B, five levels below investment grade and in line with countries including Jamaica and Paraguay, from B+.

Argentina faces ``increasing economic challenges,'' S&P analyst Sebastian Briozzo wrote in a statement. ``Inflation and fiscal and financial strain have increased while the likelihood of the government taking prompt corrective measures to staunch the loss of creditworthiness remains low.''

Argentine bonds tumbled last week after President Cristina Fernandez de Kirchner defended the government's inflation data at an Aug. 2 news conference. While government data puts annual inflation at 9.1 percent, S&P said ``private estimates suggest that it might actually be about 24 percent to 28 percent.''

S&P announced the rating cut less than an hour after Argentina's statistics agency said the monthly inflation rate fell to 0.4 percent in July, the lowest level since June 2007.

S&P's move today brings its rating on Argentina within one level of the B3 rating Moody's Investors Service gives the South American country. Gabriel Torres, an analyst at Moody's, said on Aug. 8 that the ratings company is considering cutting Argentina's debt outlook from positive because the underreporting of inflation ``raises serious questions about their willingness to pay.''

Growing Debt Payments

Yields on Argentina's benchmark 8.28 percent dollar bonds due in 2033 soared 1.42 percentage points in the seven days through Aug. 8 to 12.17 percent, according to JPMorgan Chase & Co. The bonds rebounded today after the government said it planned to buy back some of the securities. The yield dropped 62 basis points, or 0.62 percentage point, to 11.55 percent as the price rose 3.95 cents to 71.85 cents on the dollar.

Argentina's debt payments are scheduled to increase in 2009, four years after the country restructured $95 billion of defaulted bonds. Principal and interest payments are to climb from about $14.6 billion this year to $18.2 billion next year and $17.7 billion in 2010, according to the government's 2008 financing report.

The S&P rating cut ``came out at the time it had to come out,'' said Claudio Loser, a former director of the Western Hemisphere Department for the International Monetary Fund. ``There is a slowdown and the debt situation is complicated and will also be complicated in 2009.''

Signs are beginning to emerge that growth is slowing in South America's second-biggest economy. The construction industry shrank a seasonally adjusted 8.8 percent in June from May, the most in four years, according to the government. A recent slide in commodity prices may add to the slump. Argentina is the world's third-largest soybean producer and fifth-biggest wheat exporter.

To contact the reporter on this story: Drew Benson in Buenos Aires at Abenson9@bloomberg.net

Last Updated: August 11, 2008 18:02 EDT