Argentina’s Credit Rating ‘Heavily Constrained,’ Fitch Says

Argentina’s sovereign rating is “heavily constrained by inconsistent” policies that have accelerated inflation and economic volatility, Fitch Ratings said three days before presidential elections.

Growth in South America’s second-biggest economy will be “weighed down” by a slower global expansion, increasing risk aversion and a weakening Brazilian real, Fitch said in a report today. The ratings company upgraded Argentina’s long-term foreign currency rating to B, with a stable outlook, in July last year, citing the nation’s second debt restructuring since a 2001 default on $95 billion of bonds.

“Sovereigns in the ‘B’ category tend to be more vulnerable to challenging external environments given their weak policy frameworks,” Fitch said. “These could lead to unorthodox policy choices that would exacerbate their economic situation.”

Under President Cristina Fernandez de Kirchner, Argentina nationalized the $24 billion pension fund industry and tapped central bank reserves to pay debt and control a weakening of the peso. The government has remained blocked from international credit markets since its default and has about $9 billion outstanding to the Paris Club group of creditor nations. Annual inflation economists estimate at 24 percent is “one of the biggest” issues facing Argentina, Fitch said.

“The deceleration in global growth, the fall in commodity prices, higher risk aversion and the real depreciation will pose challenges” for Fernandez’s government after the election, Fitch said. “It’s not clear if the next administration will address some of the inconsistencies in the policy mix that will allow a soft-landing for the economy.”

A credit rating of B from Fitch puts Argentina in the same category as Ukraine and Cameroon.

Argentina’s economy will expand 4.5 percent in 2012, Fitch said, less than the average 5.6 percent annual rate since Fernandez, 58, took office in 2007. Polls show Fernandez is likely to win a second four-year term in the Oct. 23 vote.

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