Argentina debt upgraded by Fitch in fresh boost for Milei

Argentina’s credit score was raised by Fitch Ratings, citing the country’s move to dismantle currency controls and its success in securing multilateral funding.

The ratings company upgraded the South American nation one notch to CCC+, seven levels into junk territory and on par with Ecuador and Sri Lanka, according to a statement on Monday. Fitch doesn’t assign outlooks to sovereigns with a grade of CCC+ or below. 

The change comes against a backdrop of bullishness toward Argentina as President Javier Milei pledges to restore economic growth with an extensive reform agenda. The country’s debt was one of the best performing investments in emerging markets last year. 

In April, the government lifted most currency-market controls as part of a US$20-billion programme with the International Monetary Fund. Many on Wall Street have argued that with most capital controls gone, the country can more easily rebuild its international reserves, money it needs to support the peso and make debt payments abroad.  

The new developments “have bolstered external liquidity and the durability of President Javier Milei’s economic stabilisation programme,” Fitch analysts including Todd Martínez wrote in a note to clients. “The economic recovery and disinflation have already exceeded our prior expectations and should be further supported by these policy changes.”

The country’s benchmark dollar bonds due 2035 edged higher on the news before paring its climb to trade at 68 cents on the dollar, according to pricing data compiled by Bloomberg. 

The policy changes, analysts say, also put the crisis-prone nation in a better position to lure foreign direct investment and eventually tap international debt markets.  

Still, further gains in assets may hinge on Milei and his team continuing to deliver on an agenda of strict fiscal austerity, while igniting economic growth and maintaining popular support ahead of a key midterm election in October. 

Fitch cautions that the government remains locked out of capital markets and has repeated its pledge to not start amassing hard-currency reserves until the peso strengthens to a level of around 1,000 per US dollar.

“Reserve accumulation is not assured under the new FX regime due to the authorities’ preference for a strong currency, while external market access remains prohibitively costly,” Martínez said. “Legislative midterm elections in October will likely be an important determinant of international reserve dynamics and market access.”

Moody’s lifted Argentina’s credit score one notch to Caa3 in January, boosting the outlook to positive from stable. S&P Global Ratings affirmed its CCC rating in early February.