On the same day that the Government began to pay the US$ 4.5 billion of bonds that mature this Thursday, Moody’s improved the grade on the conditions for companies and provinces to borrow in Argentina. The risk rating agency, one of the most important on Wall Street, made that decision after analyzing the main economic variables in 2024 and concluding that there is a more favorable environment for the private sector.
Specifically, this Wednesday the ratings agency raised Argentina’s local currency rating ceiling by one step to B3 (from Caa1) and the foreign currency ceiling by another two steps to Caa1 (from Caa3) due to “the greater predictability and consistency in Argentina’s economic policy that has led to a rapid reduction of the monetary and fiscal imbalances that were fueling very high inflation.
In its fundamentals, Moody’s explained that “the government’s actions to eliminate restrictions on cross-border payments and exchange rate convertibility have increased the availability of foreign currency liquidity in the country, despite the low opening of the bank account. capital”.
And he highlighted that “Government policy has been oriented towards a reduced role of the State in the economy and less interventionist policies that suggest a lower probability of transfer and convertibility risks in the event of a sovereign default.”
The improvement in the rating comes amid bond rally and the decrease in the country risk in recent days, which this Wednesday stood at 571 basis points after the correction carried out by JP Morgan. There was also a recovery in the level of credit to the private sector, which grew more than 86% above inflation in 2024, and the level of debt placement by companies increased.
In this context, the New York-based firm said that its improvement in the rating in local currency “balances the greater predictability of the actions of the government and institutions and a lower presence of the government in the economy and the financial system, compared to to the weak stability of the external balance of payments”.
On the other hand, he indicated that “the gap of one level between the foreign currency ceiling and the local currency ceiling reflects better policy effectiveness and relatively low external debt, balanced by a low opening of the capital account”.
The rating agency has three types of notes: one on the credit quality of companies, another on the environment in which companies and provinces operate (the ceilings) and, finally, its evaluation of sovereign debt. “The rise in ceilings means that issuers in Argentina “They have a greater repayment capacity and access cheaper financing.”said Jaime Reusche, vice president of Moody’s.
The analyst considered that the adjustment plan implemented in 2024 allowed for “improvement” in the macro environment and that the course is “sustainable.” “There are no risks of the policies, which are favorable for the private sector, being reversed,” Reusche said.
Typically, companies’ credit environment ratings are revised after assessing the sovereign debt situation. But in this case, Moody’s decided to leave the latter unchanged due to the doubts it maintains about the external front, mainly the flows of financial and commercial funds determined by investment, external financing and the trade balance.
“There were improvements in almost all variables, but On the external side we want to see how the accounts were closed in 2024, the debts and late payments still with suppliers and importers, how they are going to proceed with the payment of dividends and the stocks, how this month’s debt payments are evolving and how the photo looks to see if there can be an improvement in the company’s rating. sovereign debt,” Reusche said.