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Fitch to Argentina: We didn’t like that

by on November 3, 2011

The Fitch Credit Rating Agency warned Argentina yesterday that Argentina’s recent foreign curreny policy will lead not only to higher inflation, but to a higher vulnerability to foreign currency changes. Fitch obviously ties these decisions to the reelection of the Kirchner government on October 23rd, saying that a “repatrialization” is in effect, notably among the oil and natural gas sectors. Before the elections, $3 billion in cash was stockpiled fearing an electoral rollercoaster (not a bad idea in Argentina).

As I previously mentioned, all of the export revenue from such firms must now remain in Argentina. According to MercoPress, the value of exported Argentine crude oil was $1.48 billion, while there was $732 million in natural gas. This amount is significantly greater compared to previous years, which prompted many to see the actions by the government this week to be in line with reigning in business.

Moody’s, another ratings agency, wasted no time in cutting the ratings for Argentine energy companies. All are now at Ba3 or below (which means below foreign investment grade rating). The war of words between creditors and the Argentine government seems to have taken a round for the investors, but Argentina’s unorthodox policies that have so far managed to circumvent the international system might not work in this case.

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From → Economic Policy

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