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Moody’s upgraded Argentina’s credit rating on Friday after a US appeals court rulingthis week cleared the way for Buenos Aires to proceed with the biggest debt issue by an emerging market country in 20 years.
The credit rating agency said its decision to raise Argentina’s rating was driven by expectations that the country would soon resolve its 2014 debt default, and because of economic reforms since President Mauricio Macri’s market-friendly government took power in December.
Although the upgrade to B3 from Caa1 keeps Argentine debt firmly in junk territory, the move represents further support for the country ahead of its $15bn bond sale due on Monday, which Alfonso Prat-Gay, finance minister, said on Thursday had prompted an “awesome” response from investors.
The proceeds from the sale will allow Argentina to pay about $8bn to its “holdout” creditors, after a decade-long dispute dubbed the “sovereign debt trial of the century” triggered by the country’s 2001 economic crisis which saw it default on $100bn of debt.
Once the holdouts have been paid, US court injunctions preventing Argentina from paying other creditors will be lifted, enabling it to pay some $2bn to holders of its restructured debt and put an end to its second default this century in 2014.
Daniel Pollack, the court-appointed mediator between Argentina and the holdouts, said in a statement on Friday that he expected the injunctions to be lifted as soon as next Thursday or Friday, depending on how soon the bond issue is completed.
Moody’s said that the upgrade was also motivated by improvements to economic policy since Mr Macri took office, including the lifting of capital controls, a devaluation and slashing of subsidies.
This is an enormously important event for the Republic [of Argentina], its 40m people and the world financial system
Huge challenges remain, including an inflation rate that ended last year at about 30 per cent, representing one of the highest of all the sovereign issuers rated by Moody’s, but the agency expects it to start falling in the second half of the year. Meanwhile, Moody’s expects economic growth to start picking up next year, after a contraction of 1 per cent in 2016.
Mr Pollack said the appeals court ruling would have “an enormous and positive” effect on settlements between Argentina and bondholders that had still not reached agreement. The ruling had already led to settlements with creditors with claims worth $800m, while others were “in active negotiation”.
“Prior to the ruling … it did not seem likely that agreement could be reached with these individuals,” he said, adding that now it was “a reality about to happen”.
“This is an enormously important event for the Republic [of Argentina], its 40m people and, indeed, the world financial system,” said Mr Pollack.
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