Moody’s downgrades Argentina and predicts a 65% drawdown

On rained, wet. A few days after Martín Guzmán have to present its offer for the debt, a risk rating agency appeared to launch a negative forecast on Argentina. Moody’s Investor this Friday lowered the country’s long-term foreign currency and local currency ratings to Caa2 (virtual default).

“Ca’s rating reflects Moody’s expectation that private creditors are likely to incur substantial losses in the current restructuring of government debt, since the economic and financial shock derived from the pandemic aggravates the financial stress that forces the government to reduce its debt payment obligations in the coming years “, the agency stated.

The negative outlook, Moody’s says, reflects the risk that investor losses from the government’s debt restructuring will exceed levels consistent with a Ca rating, which is generally up to 65%.

The rating agency recalls that earlier this year, the government published a schedule for the restructuring of its debt, which was due to end in late March.

But Moody’s expects that the implementation of the restructuring plan will take weeks, and possibly months, to be agreed by all parties involved.

“More importantly, the pandemic of coronavirus, which the rating agency considers a social factor, will only exacerbate the already deep economic and budgetary challenges facing the government, ultimately increasing financial stress and the level of losses bondholders are likely to incur, “he warns.

Regarding the debt with the IMF, the agency says the country will need to extend those payments over time, but that “will require agreement on a new program with the IMF, which is unlikely until debt restructuring with the private sector is complete and the Fund considers that the new debt profile is sustainable. ”

“He IMF He recently estimated that debt sustainability will require Argentina to reduce total annual debt service to private creditors and multilateral and bilateral lenders, including principal and interest, to no more than 6% of GDP. In Moody’s opinion, this restructuring will likely require substantial losses for investors, “they say.

On the other hand, Moody’s says there are “social risks” that are part of its evaluation of Argentina’s credit profile.

“The country has a long history of social protests leading to abrupt policy changes, and the current economic crisis could exacerbate those trends,” he says.

And adds that ehe economic and labor impact of the crisis coronavirus, which will be substantial and will occur after two consecutive years of economic recession, will further increase the risks of social protests and political unrest.

“Moody’s also believes that the outbreak of coronavirus, whose consequences for Argentina’s credit profile drive this rating action, is a social risk given the substantial implications for public health and safety, “it said in a statement.

And he ends by saying that the “Argentina’s weak institutional framework is based on a history of unpredictable and unsustainable policymaking. “” Our analysis also incorporates the country’s history of noncompliance and limited success in controlling high inflation.“he says.

Find out the latest on digital economy, startups, fintech, corporate innovation and blockchain. CLICK HERE