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Bonds News

Argentina debt default not imminent - Moody's

BUENOS AIRES, Nov 12 (Reuters) - A debt default is not imminent in Argentina despite growing worries over strangled government access to financing and a drop in export revenue, a senior analyst at Moody’s Investors Service said on Wednesday.

“We don’t think a default is imminent because the government has enough financial assets to pay its debt, although this depends too on political decisions,” said Gabriel Torres, a senior sovereign risk analyst at Moody’s.

Torres said the government could cut spending if the economy slows sharply or enters recession next year, and if prices for the country’s top commodities such as soy, wheat and corn keep falling.

But these prices haven’t sunk that far yet and are still at 2007 levels, which means export tax revenue will help Argentina pay its debt for the next five to six months, at least.

“This is not the same situation as in 2001 when we saw (the default) coming,” Torres told reporters in Buenos Aires, referring to a 2001-02 economic crisis that culminated in a $100 billion sovereign debt default and currency devaluation.

Argentina’s economy grew at least 8.5 percent annually from 2003 to 2007, and the expansion is only slightly weaker this year, according to government figures.

The government is on track to run a fiscal surplus for the sixth year in a row, and central bank reserves are at a robust $45 billion.

But Argentina’s debt obligations surge next year to some $20 billion, and a global credit crunch has only worsened its access to international capital markets, already limited by lawsuits from creditors who rejected its 2005 restructuring.

With the economy slowing, commodity prices falling, and the central bank using its reserves to avert a steep drop in the local peso and a bank run, the government is in a much tighter spot to service its debt.

One strategy is to keep issuing debt to state agencies, such as the tax bureau. And the government will have more cash on hand if Congress approves, as expected, President Cristina Fernandez’s plan to nationalize private pension funds’ assets.

Torres said the nationalization will fuel worries about future pension payments and worsen the country’s reputation for constantly changing the rules of the game.

But in the short term “the government is getting ahold of money it didn’t have before,” Torres said, adding that income from the private funds will amount to about 1 percent of gross domestic product next year, versus a debt load of between 3 percent and 4 percent of GDP.

“This helps but it doesn’t resolve all of Argentina’s problems,” he said.

Moody’s rates Argentine bonds at B3, or six notches into junk territory. The ratings agency revised its outlook on the rating to stable from positive in August, and Torres said no further change was warranted yet.

Last month Standard & Poor’s downgraded Argentina’s debt rating to B-, also six rungs below investment grade. (Editing by Fiona Ortiz and by Kenneth Barry)

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