Argentina's Credit Outlook Raised by Moody's After Macri Win

Macri Victory Sparks Argentina's Economic Optimism
  • Prompt resolution of `holdout saga' is key pledge: Moody's
  • Moody’s to watch proposed reform of national statistics agency

Argentina’s credit outlook was raised by Moody’s Investors Service to positive amid optimism that president-elect Mauricio Macri will implement changes to boost the credibility of South America’s second-largest economy.

The decision comes two days after second-round presidential elections, where opposition candidate Macri beat ruling-party’s Daniel Scioli. Moody’s had previously raised the country’s outlook from negative to stable on Nov. 2, a week after a first-round vote.

Argentina has been locked out of international credit markets following a decade-long legal battle with holdouts from its 2001 default. The credit rating could further increase depending on "the nature of future policy announcements and the anticipated pace of implementation," including a resolution with holdout creditors, according to the New York-based firm. Moody’s rates Argentina Caa1, or seven levels below investment grade.

"Mr. Macri has consistently and increasingly made clear his administration’s policies will represent a major market-friendly break from those observed during the last 12 years," Moody’s analysts led by Gabriel Torres wrote in a statement. “A prompt resolution of the holdout saga is a key Macri pledge in this regard, and is required for the government to borrow abroad, which it will probably need to do in order to meet upcoming debt service obligations.”

Investors are now watching Macri’s next steps as he changes course from the populist policies of President Cristina Fernandez de Kirchner. Inflation is estimated to be at 24 percent, foreign reserves are at a nine-year low, the currency is overvalued and controls have damped foreign investors’ desire to bring their money to the country.

In addition to a resolution with the holdouts, Torres said in a phone interview that Moody’s will pay close attention to Macri’s proposed reform of the national statistics agency. The reliability of the country’s economic data has been questioned by the International Monetary Fund and analysts.

"One of the greatest challenges of analyzing Argentina is that official data is not reliable," Torres said from Buenos Aires. "We don’t really know exactly what’s happening with unemployment, growth, inflation, and other measures. Having a reliable statistics agency will be a big signal that the country’s policies are changing."

Standard & Poor’s analyst Daniela Brandazza wrote in a note Tuesday that the election results have no effect on the company’s selective default credit rating for Argentina’s sovereign debt.

"The foreign currency ratings will remain at ‘SD’ until Argentina cures the default, through payment, exchange, or other settlement," she wrote. "If and when that happens, we will reassess the sovereign’s general credit standing, most likely raising the foreign currency rating to the ‘CCC’ or low ‘B’ categories."

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