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Fitch upgrades Argentina as debt payments resume

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Fitch upgrades Argentina as debt payments resume

Fitch Ratingson May 10 upgraded the sovereign ratings of Argentina following the resumption ofthe country's debt payments with restructured bondholders.

The country'slong-term foreign currency issuer default rating was raised to B from RD, whilethe short-term IDR was upgraded to B from RD. Fitch also affirmed Argentina's long-termlocal currency issuer default rating at B and the country ceiling at B. The outlookis stable.

This is thesecond ratings upgrade for Argentina in a span of a week, after S&P Global Ratingsraised the country's sovereigncredit ratings.

According toFitch, Argentina was able to resume its debt service through strong political support,even with President Mauricio Macri's small party backing in the Congress. The governmentalso obtained congressional approval to repeal certain prohibitive laws and paidsettlements by raising funds in external markets.

Aside from Argentina'srepayment on its defaulted debt, the ratings also factor in its policy framework'simproved consistency and sustainability, reduced external vulnerability, and theeasing of external and fiscal financing constraints. They also reflect structuralstrengths, such as GDP per capita and social indicators, which are offset by a weakdebt repayment record.

However, thestable outlook weighs the improvements against "risks related to relativelyweak external liquidity, continued macroeconomic underperformance compared withpeers, and deterioration of public finances in recent years," Fitch said.

The rating agencysees weak short-term growth prospects for Argentina, as higher utility tariffs,weaker exchange rate and reduced policy stimulus pressure and force the economyto contract in 2016. However, this could recover in 2017 on the back of an "easingof macroeconomic distortions, reduced government intervention, and greater accessto external sources of financing," Fitch noted.

The governmentalso faces a slowing economy, rising unemployment and high inflation that wouldserve as challenges in the process of rebalancing the country's economy and buildmacroeconomic stability, Fitch said.

S&P Global Ratings and Global Market Intelligenceare owned by S&P Global Inc.