Argentina suffers a new day of turbulence in the markets after Standard & Poor's downgraded the country to "selective default" for short-term debt. Hours later the rating agency reverse its decision, but the damage was already done.
At first, S&P did not embrace Finance Minister Hernán Lacunza's announcement to postpone payment on 85% of the capital maturities of Letes, Lelinks, Lecaps, and Lecers under control of institutional investors. S&P also lowered a Argentina long-term debt scale by changing the rating from "B" to "CCC".
The effect was immediately felt at the market opening and the country risk soared to 2,471 basis points, the highest since the 2005 debt restructuring, with the consequent fall in local bonds. But, as LPO anticipated, the drop in the country's rating was a transitory measure that was reversed as soon as the Finance Ministry published their payment schedule.
In regard to the short-term debt, the rating was also reduced by four levels from "B" to "D", i.e. the terms of a promise of payment have already been breached.
"As soon as the new terms become effective, the default will also be corrected. Therefore, we plan to raise the long-term ratings to 'CCC-' and the short-term to 'C' on August 30 in line with our policies," the agency had clarified on Thursday.
When it became known that the rating agency was reversing and taking the country out of the "selective default", the JP Morgan indicator did not back down.
On the currency side, the dollar advanced one peso and trades at $61 Argentine Peso on the Banco Nación. In the wholesale segment, it sells for $59.15, in line with the increase in the retail average.
As in the previous round, the Central Bank was absent throughout the morning and only intervened at 13:15 with a sale of 169 million dollars. Not being able to stop the advance of the currency, the Central Bank made three more auctions where they traded another 218 million to total the day with a sale of 387 million.
Actions to contain capital flight
On Friday afternoon the Central Bank issued an order that limits the distribution of currency from banks and financial institutions without first requesting permission to the monetary authority. Banks will have to comply again with this requirement that, after eleven years, was finally lifted in 2018.
The distribution of currency is made in the form of a transfer of dollars to their parent companies abroad. This is the first action that Sandleris takes to contain capital flight.
"To provide, effective 30.8.19, that financial institutions must have prior authorization from the Central Bank of the Argentine Republic for the distribution of their results", the memo reads.
Continues: "In this authorization process, the Superintendence of Financial and Exchange Institutions will take into account, among other elements, the potential effects of the application of international accounting standards according to Communication 'A' 6430 (Point 5.5. of IFRS 9 - Impairment of the value of financial assets) and of the restatement of financial statements foreseen by Communication'A' 6651".
After the publication, official sources clarified that "With this action, it is guaranteed that the liquidity of the system is maintained so that clients can obtain the liquidity that they demand. In moments of greater uncertainty, we look for the liquidity of the system to be greater in order to avoid any type of lack of capital".
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