Argentina has defaulted on its debt, according to Standard & Poor's, the rating agency, and extended the fallout from its plan to defer payments of $ 101bn on loans.
Earlier this week, Buenos Aires announced it would postpone $ 7 billion in short-term local bond payments for up to six months, pushing for a $ 50 billion "voluntary redeployment" to longer-dated debt, mostly owned by foreign investors. The government also said it plans to postpone repayment of $ 44 billion loan from the IMF.
Argentina has already defaulted on its debt eight times, twice since the turn of the millennium.
The rating agency said on Friday that it was lowering Argentina's credit rating to "selective default".
The statement came after President Mauricio Macri's government failed to sell new short-term bonds, leaving it struggling to find money for hefty upcoming repayments. About $ 30 billion in debt is due alone this year, according to Capital Economics.
"Following the continued inability to file short-term paper with private sector market participants, the Argentine government unilaterally extended the maturity of all short-term securities on August 28, S&P said in a statement on Friday. "This is standard under our criteria."
Argentina's Treasury Department dismissed the S&P order as a technicality and predicted that the agency would quickly reverse the decision, following the government's release on Friday of a new payment plan that comes into effect on Saturday
Argentina's Bonds and currencies have fallen since Mr. Macri ̵
These losses improved after S & P's announcement. The peso settled lower and traded at about 58 pesos per dollar. Argentina's dollar bond maturing in 2021 fell to a dollar of 44 dollars on the dollar, pushing interest rates up to over 70 percent. The country's 100-year bond, which had been snapped up by investors two years ago amid a surge of optimism over Mr. Macri's financial agenda, fell just under 40 cents on the dollar.
At these levels, investors say that a default is already priced, given that 40 cents on the dollar is in the range of estimated recovery value of the bonds. Much depends on the planned economic policy of opposition candidate Alberto Fernández – who is scheduled to win the presidential election in October – as well as the relationship he seeks to maintain with the IMF.
Two of the big three rating agencies lowered Argentina's credit rating after the primary result. The resounding victory of Fernández, whose running mate is former president Cristina Fernández de Kirchner, aroused concern about the return of populist politics. Two weeks ago, Fitch lowered the country's long-term issuer rating by three notches to CCC, while S&P cut its own rating to B-minus.
The further action by S&P makes it the first agency to label Mr. Macri's debt default plans – despite the government's attempt to describe the scheme as "voluntary".
S&P also said it lowered Argentina's long-term rating to CCC minus due to the risk of further breaches. The agency said: "The increased vulnerability of Argentina's credit profile stems from the rapidly deteriorating economic environment, the absence of confidence in the financial markets on policy initiatives under the next administration – elections are not until October – and the Treasury's inability to roll over short-term debt in private It added: "This has hugely emphasized debt dynamics amid a weakening exchange rate, a likely acceleration in inflation and a deeper economic downturn."
S&P is not alone in warning of another standard. Carlos de Sousa of Oxford Economics said he sees Argentina's debt as "too high to be considered sustainable, even under optimistic conditions". For this reason, he said, the next government will be forced to carry out a new transition.
A rating with a CCC minus means that debt is "currently vulnerable to non-payment and depends on favorable business, financial and financial conditions" for the borrower, according to S & P's ranking plan.