Don't cry for me: Kirchner's woes deepen as inflation accelerates.
S&P credit analyst Sebastian Briozzo says the downgrade reflects the country’s increasing economic challenges. “In particular, inflation and fiscal and financial strain have increased while the likelihood of the government taking prompt corrective measures to staunch the loss of creditworthiness remains low,” he adds.
S&P expects Argentina’s fiscal situation to deteriorate, despite a general government primary surplus likely to top 3% this year. Officials claim inflation is around 9%, but analysts say the real figure is actually closer to 30%—which partly explains the continued decline in president Cristina Fernández de Kirchner’s popularity and is triggering fear that the government may boost spending to ease political stress.
“The likelihood of a more challenging political and economic environment in 2009, combined with the government’s restricted access to market funding, raises the risk of financial strain in the coming year,” says S&P.
Access to market funding is restricted by some $20 billion in holdouts from the government’s $100 billion debt workout in 2005, which the government has yet to resolve. This limits Argentina’s center-left government to raising funds domestically or by selling sovereign bonds to Venezuelan comrade Hugo Chávez.
Local economists question the strategy of selling Argentine bonds to Venezuela at rates as high as 15%, as in the recent sale of $1.4 billion worth of due 2015 Boden bonds for $1 billion. Venezuela has bought some $6 billion in Argentine government bonds over the past two-and-a-half years.
Buenos Aires disagrees with S&P’s action, but the government is taking advantage of a post-downgrade decline in bond yields to unleash a debt buy-back that could reach $1 billion by year-end.