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  • S&P Global Ratings cut Argentina’s foreign and local-currency credit ratings to “selective default.
  • Argentina’s peso and bonds have tumbled in recent times.

S&P Global Ratings cut Argentina’s foreign and local-currency credit ratings to “selective default”. This news from the  South American nation follows that nations saying that it would delay payments on as much as $101 billion of debt – Bloomberg reported:

  • “Following the continued inability to place short-term paper with private-sector market participants, the Argentine government unilaterally extended the maturity of all short-term paper on Aug. 28,” the ratings firm said in a statement. “This constitutes default under our criteria.”
  • The government will postpone $7 billion of payments on short-term local notes held by institutional investors this year and will seek the “voluntary reprofiling” of $50 billion of longer-term debt, Economy Minister Hernan Lacunza said Wednesday evening. It will also start talks over repayments on $44 billion it has received from the IMF.
  • Since new terms for the short-term debt came into effect immediately, S&P considers the default “cured” and will raise Argentina’s long-term sovereign credit rating to CCC- on Aug. 30, it said.
  • Argentina’s peso and bonds have tumbled after opposition leader Alberto Fernandez routed President Mauricio Macri, a market favorite, in an Aug. 11 primary vote. The peso is down more than 20% since then and bonds have hit record lows, with investors pricing in an over 90% chance of default in the next five years.

FX implications:  

There is little risk of contagion over Argentina, as the nation is  not the symptom of the  wider problem in EMs, although such developments can dent the sentiment in markets – Inflation is a huge  concern in both economies and one which the respective central banks have been struggling to stay on top of. The peso, of course, will remain under huge pressure.