NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the Issuer Default Ratings (IDRs) and Country Ceiling for Argentina as follows:
--Foreign currency IDR affirmed at 'B';
--Local currency IDR
affirmed at 'B';
--Foreign currency short-term IDR affirmed at 'B';
--Country
ceiling affirmed at 'B'.
The Rating Outlook remains at Stable.
Argentina's ratings are supported by favorable growth momentum, continued albeit dwindling current account surpluses, strengthened international reserves position and a relatively favorable public debt composition. Argentina's relatively high per capita income and favorable human development indicators are additional credit strengths.
However, the ratings are constrained by Argentina's weak debt repayment record, still high general government debt burden of 50.1 % of GDP in 2010 (38% for the 'B' median), fiscal spending rigidities, limited financing flexibility, a weak policy framework and a lack of credibility of official data, particularly regarding inflation.
Argentina's growth performance has been robust, with real growth reaching 9.2% in 2010, and its five-year growth rate of near 7% in 2010 compares favorably with the 'B' median of 5.9%. A moderate slowdown is likely during Fitch's forecast period, with growth reaching 7% in 2011 and slowing to 4% in 2013.
'While Argentina weathered the global financial crisis well, and its near-term growth prospects are favorable, the sustainability of the growth model is uncertain due to the presence of economic distortions resulting in high inflation and lower incentives for long-term productive investments,' said Lucila Broide, Director at Fitch Ratings' Sovereign group.
The fiscal stance remains expansionary and according to Fitch the increased tax burden in recent years and growing spending rigidities will make fiscal policy management more challenging should the economic cycle reverse significantly. However, general government debt (percentage of GDP) is still declining and financing flexibility in the short term is supported by the fact that nearly 50% of government debt is held by intra-public institutions.
With the presidential elections approaching in October 2011, capital flight appears to have increased. This, coupled with the deterioration in current account balances, could lead to a modest fall in international reserves in 2011. However, Fitch believes that international reserves coverage is sufficient for the authorities to cope with this scenario.
'Policy adjustments could gain importance in the next administration, especially if terms of trade do not improve further, domestic growth falters, and 'unofficial' inflation remains high, leading to sustained real exchange rate appreciation,' added Broide. In this context, Fitch will monitor the next government's policy decisions including the pace of fiscal spending, the unwinding of politically sensitive subsidies, improvement in the transparency of inflation data, further normalization of relations with external creditors, and the re-entry of the sovereign to voluntary debt markets.
Greater flexibility in the sovereign's financing sources, improvements in the overall policy stance and transparency of official data, and continued reduction in the public debt burden would bolster creditworthiness. On the other hand, Fitch would regard negatively a sustained increase in the public debt burden, a more difficult fiscal and external financing outlook, and a considerable increase in policy mismanagement. A disorderly exchange rate adjustment and an inflation spiral that significantly increases macroeconomic instability would also be negative.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Sovereign Rating
Methodology' (Aug. 13, 2010).
Applicable Criteria and Related Research:
Sovereign Rating
Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547765
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