Fact Check: Argentina

937 days, 15 hours, 29 minutes ago


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Argentina’s choice to default leads to downgrade of its banks

The effects of Argentina’s default are starting to become apparent. Just today, Fitch Ratings issued a press release stating it was downgrading Argentina’s financial institutions as a direct result of the country’s “recent sovereign restrictive default.”

Fitch stated that “These financial institutions have maintained sound financial profiles, but the potential of increased sovereign risk cannot be underestimated.”

The downgrade included some of Argentina’s biggest banks: Banco Macro, Banco Santander Rio, BBVA and Banco Frances, among others. This downgrade is likely to make it even more expensive for Argentines to borrow money.

Why should Argentina’s independent financial institutions, who, according to Fitch, are healthy (despite the macroeconomic mess the Argentine government has caused) be punished because Argentina refuses to negotiate with its creditors?

The press release continued, “In Fitch’s view, regardless of their overall reasonable financial condition, these bank’s ratings are currently capped by the LC [local currency] sovereign rating, due to the weak and worsening operating environment, and the challenges posed by the sovereign’s delicate position with foreign creditors…Fitch considers that downside risk for these ratings is heavily associated with the potential contagion effect of the recent sovereign default on the country’s already weak economic outlook.”

One would think the Argentine government might be prompted to take the default more seriously after this downgrade some of the country’s largest financial institutions, but recall that Economic Minister Axel Kicillof had this to say recently after S&P declared the country to be in default: “Who Believes in the Ratings Agencies?”  Just another example of Argentina’s stubborn refusal to acknowledge that its policy mistakes are hurting its businesses and the economy.