Argentina hit by Fitch downgrade to triple-C

BUENOS AIRES• Ratings agency Fitch on Friday downgraded Argentina’s sovereign debt rating from ‘B’ to ‘triple-C,’ flagging an increased likelihood of a default in the wake of a shock primary election result that plunged the country into its latest economic crisis.

Argentine markets were in free-fall for most of the week after Sunday’s vote when centre-left presidential candidate Alberto Fernandez trounced centre-right President Mauricio Macri. The scale of Fernandez’s victory suggested he could win the October ballot in the first round, potentially putting an end to free-market economic reforms and an IMF-backed austerity plan.

The Fitch downgrade brings to an end a tough week in which the peso lost nearly 20 per cent of its value. Fitch said it expected Argentina’s economy to contract 2.5 per cent in 2019, down from a previous forecast of 1.7 per cent. Fitch added that it saw government debt rising to around 95 per cent of GDP in 2019.

“The downgrade of Argentina’s ratings reflects elevated policy uncertainty following the primary elections, a severe tightening of financing conditions, and an expected deterioration in the macroeconomic environment that increase the likelihood of a sovereign default or restructuring of some kind,” Fitch said.

Alejo Czerwonko at UBS said Fitch’s downgrade was not going to substantially change many people’s minds about Argentine debt.

“Argentina was already rated deep into junk territory and this is pushing the rating a bit deeper, but it reveals little new information to investors,” he said. “This will lead (other) ratings agencies to reassess the rating.”

Fitch also said it expects growth to be flat in 2020, while also cautioning there was likely to be plenty of uncertainty “given lack of clarity around key economic policies post-election.”

The ratings agency said the chances of Fernandez winning the election had grown, raising doubts about the future of Macri’s IMFbacked austerity plan. The fact Fernandez’s running mate is leftist former president Cristina Fernandez de Kirchner heightened those doubts, Fitch said.