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By Cassandra Garrison
BUENOS AIRES (Reuters) – The $65 billion debt restructuring agreement of Argentina with bondholders will most likely lead to increases in lending, but it is about securing the country’s long-term economic future, reteads told Reuters on Thursday.
After months of negotiations, Argentina reached an agreement on Tuesday with major creditor teams to reorganize the debt, after falling into its ninth default sovereign in May. The agreement has not yet been formalized this month.
Moody’s sovereign ratings analyst Gabriel Torres said it necessarily ensured a positive economic outlook beyond the short term.
“All you did was throw the box on the road, ” said Torres. “It is not transparent to me that markets will lend to this management in the future.”
Standard and Poor’s plans to pull Argentina out of its existing selective default (SD) score after the deal is formalized, says Lisa Schineller, the firm’s senior analyst for sovereign scores in Latin America.
The precise score, however, will feature Argentina’s expansion trajectory, which has been paralyzed under the effect of COVID-19.
“Weak expansion is anything I replace overnight, so it will keep the score low,” Schineller said.
Todd Martinez, director of Latin American sovereigns at Fitch Ratings, who downgraded Argentina’s rating to “RD” in May, said the country would get an exit score on the deal, but that it would be a modest gain.
Argentina’s growing budget deficit, peak inflation and skewed exchange rate will continue to have an effect on its credit rating far beyond any agreement, he said.
“Customers for an additional improvement in scoring after restructuring are very uncertain,” Martinez said. “Let’s see how Argentina navigates and solves its deep imbalances.”
Argentina will eventually have to return to capital markets to keep up with its restructured debt, which will not be easy. The economy is expected to contract by more than 10% this year and there are strict capital controls.
“Can Argentina pay off this new debt?” Torres de Moody asked. “That will be the point.”
(Report through Cassandra Garrison; Edited through Adam Jourdan and Dan Grebler)