Argentina has defaulted on its debt, according to Standard & Poor’s, the rating agency, after it announced plans to delay payments on its $101 billion (€91.3 billion) of borrowings.
On Wednesday Buenos Aires announced plans to postpone $7 billion of payments on its short-term local bonds for up to six months while it pushes for a "voluntary reprofiling" of $50 billion of longer-dated debt, which is mostly owned by foreign investors. The government also said it plans to delay repayment of $44 billion of loans from the IMF.
Argentina has already defaulted on its debt eight times, twice since the turn of the millennium.
The move came after President Mauricio Macri's government failed to sell new short-term bonds, leaving the government struggling to find the cash for hefty upcoming repayments. Some $30 billion in debt falls due this year alone, according to Capital Economics.
“Following the continued inability to place short-term paper with private-sector market participants, the Argentine government unilaterally extended the maturity of all short-term paper on August 28th. This constitutes default under our criteria,” S&P said in a statement on Friday. The ratings firm also said it was lowering Argentina’s credit rating to “selective default”.
Argentina's bonds and currency have slumped since Mr Macri - who had been a popular figure with international investors - suffered an unexpectedly heavy defeat in a primary election which all but ended his hopes of re-election in October.
Those losses deepened following S&P’s announcement. The peso edged lower to trade at about 58 pesos per dollar. Argentina’s dollar bond maturing in 2021 slipped to a price of 46.6 cents on the dollar, pushing its yield up to 64 per cent. The country’s 100-year bond, which had been snapped up by investors two years ago amid a wave of optimism over Mr Macri’s economic agenda, fell to 41 cents on the dollar.
The result of the primary election had already seen two of the big three rating agencies lower Argentina's credit rating. The resounding victory for opposition candidate Alberto Fernández, whose running mate is former president Cristina Fernández de Kirchner, stoked concerns about the return of populist policies. Two weeks ago, Fitch lowered the country's long-term issuer rating by three notches to CCC, while S&P cut its own rating to B-.
But the further action from S&P makes it the first agency to label Mr Macri’s debt plans a default - despite the government’s attempts to describe the arrangement as “voluntary”.
S&P also said it was lowering Argentina’s long-term rating to CCC- due to “heightened risk” of a further default. The company said: “The heightened vulnerabilities of Argentina’s credit profile stem from the quickly deteriorating financial environment, the absence of confidence in the financial markets about policy initiatives under the next administration - elections are not until October - and the inability of the Treasury to roll over short-term debt with the private sector.”
“This has immensely stressed debt dynamics amid a depreciating exchange rate, a likely acceleration in inflation, and a deepening economic recession,” the agency added.
A triple-C rating means debt is “currently vulnerable to non-payment and is dependent upon favourable business, financial, and economic conditions” for the borrower, according to S&P’s ratings schedule. – Copyright The Financial Times Limited 2019