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S&P, Fitch downgrade Argentina after Macri's reelection setback

S&P Global Ratings and Fitch Ratings downgraded Argentina's credit rating further into junk territory, citing the market turmoil caused by President Mauricio Macri's defeat in the Aug. 11 primary elections.

S&P Global Ratings lowered Argentina's long-term foreign and local currency sovereign credit ratings to B- from B, with a negative outlook. The short-term foreign and local currency ratings were affirmed at B.

Meanwhile, Fitch lowered the long-term foreign- and local-currency issuer default ratings to CCC from B and the short-term ratings to C from B.

In the primary vote, Macri lagged behind main opposition candidate Alberto Fernández by an unexpectedly wide margin, raising the odds of a change in government and policy discontinuity after the October general elections, according to Fitch.

The market reaction to the primary vote results, including a plunge in the Argentine peso, is weighing on the country's macroeconomic environment and financing conditions, increasing the prospects of a sovereign default or restructuring, Fitch warned.

"These adverse developments could impair the sovereign's liquidity position in the near term and amplify debt sustainability risks," the debt watcher said.

S&P Global Ratings said the market turbulence "has meaningfully weakened the sovereign's already vulnerable financial profile."

"[T]he magnitude of the market sell-off and likely long duration during the entire electoral period has weakened key rating indicators and has pushed policy execution to crisis management mode," the rating agency said.

S&P said Argentina's net government debt is expected to increase to 84% of GDP in 2019 from 76% in 2018 due to the peso's further depreciation. The country's economy is also forecast to contract 2.3% this year, compared to previous estimates of a 1.6% decline.

Fitch projected Argentina's general government debt to climb to about 95% of GDP in 2019 and its economy to contract 2.5%, down from a previous forecast of 1.7%.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.