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Rating Action:

Moody's affirms Argentina's Ca rating, changes outlook to stable

28 Sep 2020

New York, September 28, 2020 -- Moody's Investors Service, ("Moody's") has today affirmed the Government of Argentina's Ca foreign-currency and local-currency long-term issuer and senior unsecured ratings and the (P)Ca senior unsecured ratings for shelf registrations. The outlook on these ratings has been changed to stable from negative.

The outlook change to stable from negative reflects a materially lower risk that future losses will exceed those implicitly incorporated in Argentina's current Ca rating in the aftermath of the recent debt restructuring.

The affirmation of the Ca/(P)Ca ratings reflects Moody's view that elevated credit risks remain present unless the authorities address the fundamental macroeconomic imbalances that continue to undermine the sovereign credit profile, raising questions about Argentina's capacity to meet future debt obligations, which are set to rise sharply after 2024.

At the same time Argentina's short-term rating was affirmed at Not Prime (NP). The senior unsecured ratings for government bonds that were not restructured after the 2001/02 default were affirmed at Ca.

Argentina's long-term foreign-currency bond ceiling remains unchanged at Caa3. The foreign-currency deposit ceiling remains unchanged at Ca. The local-currency country ceilings for bonds and bank deposits remain unchanged at Caa1. The short-term foreign-currency bank deposit ceiling and the short-term foreign-currency bond ceiling remain unchanged at Not Prime (NP).

RATINGS RATIONALE

RATIONALE FOR THE CHANGE IN OUTLOOK TO STABLE FROM NEGATIVE

MATERIALLY LOWER RISK THAT FUTURE LOSSES WILL EXCEED THOSE INCORPORATED IN CURRENT Ca RATING

On 4 September, Argentina finished restructuring $107 billion of its debt, including $66 billion in foreign-currency debt issued under foreign legislation and $41 billion in foreign-currency debt issued under domestic legislation.

The debt restructuring extended upcoming maturities and reduced interest payments. As a result, Argentina's annual debt service on the newly restructured debt will remain below $5 billion until 2024, but will spike markedly thereafter.

In Moody's opinion, even though the risk of future debt restructurings remains high as debt payments are set to rise materially and Argentina's ability to meet them remains uncertain, losses coming from any future restructuring will likely remain within the 35% to 65% range associated with a Ca rating.

RATIONALE FOR THE RATING AFFIRMATION AT Ca

LIMITED CAPACITY TO MEET FUTURE DEBT OBLIGATIONS UNLESS FUNDAMENTAL MACROECONOMIC INBALANCES ARE CORRECTED

Repayment of restructured debt will require that Argentina tap international capital markets that today remain closed. Moody's expects Argentina's market access to remain very limited as long as the government fails to address long-standing macro-economic imbalances.

Argentina has a long history of credit-negative policymaking and currently faces a series of macroeconomic imbalances that may deepen and prolong an already extensive economic crisis. Macroeconomic challenges include a weak economy on its third year of recession, persistently high inflation bolstered by central bank funding of fiscal deficits, and heightened pressures on the exchange rate and international reserves.

Moody's expects the economy to contract by 12% in 2020 largely due to coronavirus-related lockdowns. Economic activity will recover in 2021 with GDP growth estimated at 5%, but Moody's expects long-term trend growth to likely remain below 2% reflecting structural constraints mostly associated with prospects of low levels of investment.

Central bank financing of the fiscal deficit, which has led to increased monetary emission, is generating additional pressures on the exchange rate and increasing the risk of inflationary outbursts driven by a devaluation-inflation cycle. Moody's expects fiscal deficits of close to 9% of GDP this year and 6% in 2021 to be largely funded by the central bank.

International reserves have been under pressure. At present, the level of gross reserves stands at over $40 billion, but net liquid reserves (excluding dollar deposits held at the central bank, gold and swaps with other central banks) are estimated below $10 billion. Further drops in available reserves could precipitate a balance-of-payments crisis and force a large devaluation, further aggravating the economic crisis.

The government aims to negotiate a new agreement with the International Monetary Fund (IMF) to reprofile $44 billion in debt payment payments to the IMF. Reaching an agreement with the IMF, and delivering on the targets, will not be easy as the government will have to commit to multiyear fiscal consolidation targets and multiple structural reforms aimed at jumpstarting economic growth. In addition to policy implementation challenges, the authorities will also encounter strong social and political opposition that could further complicate this endeavor.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook reflects Moody's view that, given Argentina's improved post-restructuring debt profile, investor losses under future debt restructurings would likely remain below 65%, a level consistent with a Ca rating.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

As a major agricultural exporter, Argentina is moderately exposed to environmental risks. Agricultural exports, which represent over 50% of the total, are vulnerable to regular climate-related shocks. In 2018, a major drought was a key factor in that year's economic crisis, robbing the government of needed foreign-exchange revenue and contributing to a 2.5% contraction in economic activity.

Social risks also inform Moody's assessment of Argentina's credit profile. Argentina has a long history of social protests leading to abrupt policy changes and the current economic crisis could exacerbate those trends. The economic and employment impact of the coronavirus crisis, which will be substantial and coming after two consecutive years of economic recession, will further raise the risks of social protests and political turmoil. Moody's also regards the coronavirus outbreak, the consequences of which drive this rating action, to be a social risk under its ESG framework given the substantial implications for public health and safety.

In terms of governance, Argentina's weak institutional framework is underpinned by a history of unpredictable and unsustainable policymaking. Moody's analysis also incorporates the country's track record of default and limited success in controlling high inflation.

GDP per capita (PPP basis, US$): 20,055 (2019 Actual) (also known as Per Capita Income)

Real GDP growth (% change): -2.1% (2019 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 57.3% (2019 Actual)

Gen. Gov. Financial Balance/GDP: -3.8% (2019 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: -0.9% (2019 Actual) (also known as External Balance)

External debt/GDP: 62.5% (2019 Actual)

Economic resiliency: b2

Default history: At least one default event (on bonds and/or loans) has been recorded since 1983.

On 24 September 2020, a rating committee was called to discuss the rating of the Argentina, Government of. The main points raised during the discussion were: The issuer's economic fundamentals, including its economic strength, have not materially changed. The issuer's governance and/or management, have not materially changed. The issuer's fiscal or financial strength, including its debt profile, has materially increased. The systemic risk in which the issuer operates has materially decreased. The issuer has become increasingly susceptible to event risks.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

A positive rating action will require clear evidence of will and ability on the part of the authorities to set a credible policy path to fiscal consolidation and to implement policies that lead to a material and sustained reduction of macroeconomic imbalances.

Argentina's rating would be downgraded if Moody's anticipated underlying credit conditions could lead to future debt restructurings in which losses to bondholders could exceed the 65% mark.

The principal methodology used in these ratings was Sovereign Ratings Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Gabriel Torres
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Yves Lemay
MD-Sovereign/Sub Sovereign
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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