articles Ratings /ratings/en/research/articles/240305-argentine-provinces-vulnerabilities-remain-high-following-la-rioja-s-default-13026991 content esgSubNav
In This List
NEWS

Argentine Provinces' Vulnerabilities Remain High Following La Rioja's Default

COMMENTS

Islamic Finance 2024-2025: Resilient Growth Anticipated Despite Missed Opportunities

COMMENTS

Private Markets Monthly, April 2024: Private Credit Is A Growing Segment Of Nonbank Finance

COMMENTS

CreditWeek: How Could Megatrends Influence Credit Materiality?

COMMENTS

Your Three Minutes In Spanish Regional Finance: Higher Expenditure May Limit Deleveraging


Argentine Provinces' Vulnerabilities Remain High Following La Rioja's Default

This report does not constitute a rating action.

BUENOS AIRES (S&P Global Ratings) March 5, 2024--Amid a severe financial downturn, the Argentine province of La Rioja defaulted on its international bond in late February. In early March, the Province of Buenos Aires paid roughly US$350 million on its international bonds. Both provinces are highly exposed to national government nonautomatic transfers--a key differentiator for Buenos Aires was its savings in U.S. dollars.

We believe Argentine provinces are generally willing to avoid default.  Our 'CCC-' ratings and negative outlooks on the Argentine provinces we rate underscore their high vulnerabilities that come from significant macroeconomic challenges and the volatile fiscal framework.

However, in the short term, and as most recently evidenced in the cases of Buenos Aires and Entre Rios, some provinces will likely try to avoid default and a new debt restructuring given that it has only been three years since the last restructurings, which were long and costly. These restructurings resulted in a significantly smoother debt service payments calendar than the original terms, especially in 2022 and 2023. Even in 2024, the provinces' expected debt service of US$2 billion is 20% lower than what the prior terms implied.

Moreover, most provinces were able to build some liquidity cushions over the last couple of years, albeit mostly in pesos invested in different instruments.

Fiscal pressure will be very high and could make it difficult for provinces to prioritize debt service payments.  Liquidity started eroding in 2023 as higher indexation of costs limited the transitory benefit of high inflation (see "Argentine Provinces Update: Navigating The Shock Therapy," Jan. 23, 2024). Economic contraction, lower transfers, and potential hikes in the exchange rate will challenge provincial administrations that rely on savings to pay debt, since there is no market access. We believe salaries, which are the main outlay for provincial governments at around 60% of total spending, will likely be prioritized over debt repayment in a scenario of severe social conditions and liquidity crunch, as seen recently.

The national government is not coordinating provincial debt restructurings.  In 2020-2021, uncertainty on macroeconomic variables and low international reserves led the national government to coordinate provincial governments' efforts to seek debt relief, which followed a debt restructuring at the sovereign level.

We believe this coordination was a strong incentive to restructure, even in cases where the impact from the economic crisis was not as severe or immediate. From September 2020 to September 2021, all provinces with foreign currency bonds--except for the City of Buenos Aires, Province of Santa Fe, and Province of Tierra del Fuego--restructured all or some of their international bonds for a total amount of about US$12.5 billion. Tierra del Fuego restructured its bond backed by royalties more recently, in early 2024.

Argentine provinces' debt service payments in 2024
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total

City of Buenos Aires

- - - - - 33.38 - - - - - 33.38 66.76
Chaco - 37.75 - - - - - 38.82 - - - - 76.57
Chubut 34.48 - - 34.01 - - 33.54 - - 33.06 - - 135.09

Cordoba

- 15.68 - - - 154.93 - 15.68 - - - 150.80 337.09

Entre Rios

- 65.79 - - - - - 63.87 - - - - 129.65

Jujuy

- - 28.09 - - - - - 27.47 - - - 55.57

La Rioja

- 29.45 - - - - - 51.35 - - - - 80.80

Mendoza

- - 53.66 - - - - - 52.49 - - - 106.14

Neuquen

- 14.98 - 41.74 14.81 - - 14.64 - 40.76 14.47 - 141.42

Province of Buenos Aires

- - 351.46 - - - - - 347.75 - - - 699.21

Rio Negro

- - 46.56 - - - - - 45.33 - - - 91.89

Salta

- - - - - 40.39 - - - - - 39.25 79.64
Santa Fe - - - - - 8.63 - - - - 8.63 - 17.25
Tierra del Fuego 2.29 - - 2.29 - - 2.29 - - 2.29 - - 9.16
Total 36.77 163.66 479.77 78.04 14.81 237.33 35.83 184.36 473.04 76.12 23.10 223.43 2,026.25

Related Research

S&P Global Ratings, part of S&P Global Inc. (NYSE: SPGI), is the world's leading provider of independent credit risk research. We publish more than a million credit ratings on debt issued by sovereign, municipal, corporate and financial sector entities. With over 1,600 credit analysts in 27 countries, and more than 150 years' experience of assessing credit risk, we offer a unique combination of global coverage and local insight. Our research and opinions about relative credit risk provide market participants with information that helps to support the growth of transparent, liquid debt markets worldwide.

Primary Credit Analyst:Constanza M Perez Aquino, Buenos Aires + 54 11 4891 2167;
constanza.perez.aquino@spglobal.com
Secondary Contacts:Carolina Caballero, Sao Paulo (55) 11-3039-9748;
carolina.caballero@spglobal.com
Manuel Orozco, Sao Paulo + 55 11 3039 4819;
manuel.orozco@spglobal.com
Victor C Santana, Sao Paulo + 55 11 3039-4831;
victor.santana@spglobal.com

No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.

 

Create a free account to unlock the article.

Gain access to exclusive research, events and more.

Already have an account?    Sign in