First, one of Argentina’s navy training ships was seized in Africa after the Argentinian government refused to pay an investor in full. Then, last week, a U.S. federal court ruled that Argentina couldn’t continue stiffing bondholders. Now, Argentina’s sovereign credit rating is plummeting deep into junk territory. The WSJ reports:
Mr. [Hernan] Lorenzino [Argentina's Economy Minister] said the administration of President Cristina Kirchner will “do everything that is necessary” to pay debt issued to two separate swaps for defaulted debt, and to do so in the currency they were issued. His remarks came after Standard & Poor’s Ratings Services Tuesday cut its sovereign rating on Argentina one-notch to B-minus, six levels into junk territory, with a negative outlook. Earlier in the day, Fitch Ratings had placed its single-B Argentina rating on review for a downgrade. Both agencies cited increasing debt management risks, in particular that Latin America’s third-biggest economy will be able to service its external debt.
S&P pointed to last week’s ruling by a U.S. appeals court backing the right of defaulted bondholders to be paid at the same time as those who accepted the bond swap offers. It also noted the seizure of an Argentine navy ship in Ghana by a court in the West African country on behalf of defaulted bond investors, as well as a payment in pesos by the Argentine province of Chaco on its dollar-denominated bonds.
Argentina has lurched through the twentieth century from one bad economic experiment to the next, vacillating between hyperinflation and depression. The country’s vast natural resources are a bulwark against collapse, but that’s never enough. It’s a sad story of a country with vast human and natural wealth governed by bad policies. The pressure on President Kirchner’s government will continue to grow.