The Fitch Ratings agency lowered Argentina’s foreign currency sovereign debt rating on Friday from “CCC-” to “C”, to reflect its opinion that a debt default is imminent due to its swap plans.
The decision is the result of adecree that obliges national public sector entities to carry out operations with their holdings of sovereign debt securities, which would imply unilateral exchanges and forced currency conversion that constitute default events according to Fitch criteria”.
The Argentine government published decrees this week ordering public organizations to change debt in dollars for another in pesos, at a time when the central bank (BCRA) continues to lose reserves.
“The measures simply give the government a temporary reprieve and do not address the fundamental issue that the peso is too heavy.Kimberley Sperrfechter, emerging markets economist at Capital Economics, said in a note.
Sperrfechter described the measure as “another desperate attempt to support the peso and ease the pressure on foreign reserves”.
Fitch also said that Argentina’s long-term local currency credit rating remains at “CCC-”, since the titles in this currency are not affected by the decrees, but “repayment capacity continues to be highly compromised”.
The International Monetary Fund had said Thursday that it was evaluating Argentina’s debt swap announcement in line with the targets of its $44 billion debt program.
Fitch recalled in a note that the default events considered in its criteria include “a unilateral exchange (…) initiated by the sovereign on a public debt security” and “a forced redenomination of the sovereign debt to a different currency”.
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