Moody’s Upgrade Can Open Doors for Argentina 2

Moody’s upgrades outlook

Ratings major Moody’s Investors Services upgraded its outlook on Argentina to positive from stable at the end of trading on March 6. Even though Moody’s left the sovereign rating of the country at ‘B3,’ this upgrade could boost its chances of being categorized as an emerging market.

MSCI, which labels Argentina as a frontier market, is expected to review its status in June this year. The firm has maintained ‘frontier’ status on the country since 2009.

Outlook upgrade rationale

Moody’s noted the following reasons in its report as the key drivers for its outlook upgrade:

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  • Argentina’s improved policy stance which supports a return to economic growth in 2017.
  • The firm’s expectation that faster economic growth will allow Argentina’s government to begin reducing its high fiscal deficit in 2018.

The report stated that, “Over the past fourteen months, a number of policies have been introduced which have laid the ground for future improvements to Argentina’s economic and fiscal strength, and for a reduction in its exposure to shocks. The positive outlook reflects the rising likelihood that those policies, and the improvements in Argentina’s institutional strength which they illustrate, will be sustained and bring about lasting improvements in Argentina’s credit profile.”

The reform measures

Argentina’s President Mauricio Macri, who’s been in office for just 15 months, has undertaken capital control and currency reforms in order to make the country more attractive to overseas investors.

Inside a week of taking office, he allowed the Argentine peso to float freely. Towards the end of 2016, the nation’s central bank announced its permission for forward and swap transactions on foreign currency exchange from July 1. This was a significant development as it has not been allowed in the country for the past decade and a half.

Apart from currency controls, the country has removed capital controls and ended debt disputes with its creditors, allowing it access to global financial markets. Let’s look at some of these steps in the next article.

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