S&P Global Ratings placed Argentina's long-term sovereign credit ratings on CreditWatch with negative implications, saying the recent pressure on the peso threatens the government's efforts to stabilize the economy.
The peso plunged Aug. 29 after Argentine President Mauricio Macri asked the International Monetary Fund to accelerate the disbursement of funds from a $50 billion standby arrangement to ease market concerns about the country's financing capacity. The currency extended losses the following day, despite the central bank hiking its monetary policy interest rate after an emergency meeting.
"Exchange rate volatility, as shown by recent pressure on the Argentine currency, could jeopardize the effective implementation of economic adjustment measures, absent further steps to boost investor confidence," S&P said, adding that it expects to resolve the CreditWatch status within 90 days.
The rating agency warned that the peso could face further downward pressure due to developments that weaken policy credibility and negatively affect inflation expectations. It also sounded caution on further raising Argentina's already high interest rates, saying they could hurt the economy and the government's budget.
"The combination of persistently high inflation and exchange rate pressures could undermine the government's fiscal adjustment strategy and increase its debt burden, leading to a downgrade," said S&P, which projected the change in Argentina's net general government debt to average above 12% of GDP through 2021.
S&P's long-term and short-term sovereign credit ratings on Argentina are B+ and B, respectively. The CreditWatch status does not apply to the short-term ratings.
The debt watcher said it could keep Argentina's ratings at their current levels if the government successfully reinforces policy credibility, a move that would contain currency pressures and set the path to economic recovery in 2019.
Argentina's treasury minister is expecting the country's economy to shrink 1% in 2018 before recovering with at least a 1.5% growth next year.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.