- Credit rating agency Moody's upgraded Argentina on Friday, citing the new president's economic reforms and improved government finances. Moody's also raised its outlook on South America's second largest economy.
Argentine President Javier Milei received a major vote of confidence as the libertarian introduces sweeping reforms to transform South America's second largest economy.
Credit rating agency Moody's sees less risk of a debt default, upgrading the country on Friday one notch to Caa3 from Ca and boosting its outlook to positive from stable.
While Argentina's new rating remains in junk territory, the upgrade represents the first in five years and comes as Milei has vastly improved the country's economy just a year after taking office.
"Argentina's credit fundamentals have improved over the past year, as a result of the effective and forceful policy adjustments that have led to a stabilization of the macroeconomic environment," Moody's said.
Inflation is cooling sharply, government spending has been slashed, and deficits are narrowing, it noted. In fact, the government showed a year-to-date surplus in November of 0.1% of GDP, reversing from a shortfall of 4.4% of GDP at the same time a year earlier.
That's brightening the debt outlook too. After debt reached 156% of GDP in 2023, Moody's estimated it sank to 77% last year and predicted it will plunge further to 50% by 2026.
Milei's free-market shock therapy for Argentina, which has historically been plagued by high inflation, anemic growth, onerous red tape, and debt defaults, has earned him the nickname "el loco," or the crazy one.
In addition to massive spending cuts and government layoffs, he boasted after Donald Trump's inauguration on Monday that he has eliminated more than 900 regulations.
They include a rule for some government workers that guaranteed their children would get their jobs after they died as well as a regulation on selling "normal" potatoes that allowed vegetable stands to get a bonus, according to the Wall Street Journal.
Milei even created a Ministry of Deregulation and State Transformation, earning him fans on the right like Elon Musk, who is leading the Department of Government Efficiency under the Trump administration.
To be sure, Milei's sudden reductions in government spending have slammed the economy. Moody's estimated GDP shrank 3.5% in 2024. But it also sees a quick rebound with growth of 3% this year.
Meanwhile, inflation is still high but well below previous levels. The annual rate was a whopping 211% when Milei took office at the end of 2023. It slowed to 166% in November, and Moody's expects it to slip to 40% this year.
A tax amnesty that helped bring $20 billion in assets from abroad and new measures to attract foreign currency inflows have allowed Argentina to build up its international reserves, Moody's added.
"The forceful shift in fiscal and monetary policies, the stabilization of external finances, and adoption of market-oriented reforms have boosted domestic private sector confidence and rekindled dynamism in domestic credit and financial markets," it said.
There is more work to be done. Moody's pointed to the easing of capital controls without sparking sudden volatility in inflows or outflows. Too much optimism could also overstimulate the economy and create other imbalances, it warned.
Still, a new deal with the International Monetary Fund would further bolster investor sentiment and help diversify Argentina's funding sources, which could feed into key growth sectors of the economy, according to Moody's.
"An acceleration of foreign investment inflows related to various projects in the energy sector to tap into the country's vast natural hydrocarbon resources, would improve Argentina's medium-term export and growth prospects, further strengthening the sovereign credit profile," it said.
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