Argentina: the vicious circle of default again in sight

The headquarters of the Central Bank of the Argentine Republic (BCRA), in Buenos Aires, in 2019 (illustration photo). AFP - JUAN MABROMATA

Text by: RFI Follow

2 min

Buenos Aires on the verge of default? Yes, according to the criteria of the rating agency Fitch, which on Friday lowered the rating of Argentina's dollar debt to C, a notch above default. The agency justifies this deterioration by the government's decision to require public bodies to convert their dollar debt into pesos. This measure is itself intended to strengthen the meagre reserves of the country's Central Bank.

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With our correspondent in Buenos Aires, Théo Conscience

Foreign exchange shortages are a chronic problem in Argentina, but it has been exacerbated in recent months by the historic drought that has hit the country and severely affected its harvests.

According to Julio Calzada, director of research at the Rosario Stock Exchange, total production of wheat, corn and soybeans is expected to fall by 38% compared to last year.

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For Argentina, this implies losses of 20 to 21 billion dollars. That's about 3% of Argentina's GDP as assessed by the International Monetary Fund, so the situation is really critical," he said.

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3% of GDP, and drastic consequences on international sales of grains and derivatives, which in 2022 accounted for nearly half of Argentine exports.

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The decline in exports is estimated at between $15 billion and $16 billion. So the losses are really significant given the state of foreign exchange reserves, which is already critical and could deteriorate further," Calzada said.

The conversion into pesos of the dollar debt of public bodies should make it possible to release the equivalent of 4 billion dollars, which according to the government will strengthen the capacity of the State to act on the financial markets in order to contain the devaluation of the national currency.

► Also listen: Argentine corn, a sharp decline in production

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• Argentina
• Currencies
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