WSJ: S&P Lowers Argentina Outlook To Negative

April 24, 2012 8:56 am0 commentsViews:

Standard & Poor’s Ratings Services lowered its outlook on Argentina to negative from stable, citing recent policies such as steps to nationalize oil company YPF SAYPF -1.36% (YPF, YPFD.BA) and restrictions on international trade that could hurt the South American country’s medium-term growth prospects.

S&P, which affirmed Argentina’s ratings five notches into junk territory at B, said policies such as those enacted since the country’s October presidential election could also weaken Argentina’s macroeconomic framework and external liquidity.

The move to nationalize YPF, “which was taken abruptly and unilaterally and with little negotiation with the controlling shareholder, underscores the weakening system of checks and balances in Argentina,” S&P said. “Actions of this type continue to shorten the economic planning horizon in the country and contribute to Argentina’s deteriorating economic and political links with the international community.”

S&P said a worsening external position, most likely from financial outflows, or additional policy actions that could further hurt the country’s growth prospects could lead to a downgrade. Meanwhile, actions that restore confidence on medium-term prospects for the economy and reduce uncertainty over its external liquidity position, could prompt S&P to change the outlook back to stable.

Last week, Argentine President Cristina Kirchner asked Congress to nationalize YPF by expropriating 51% of the company’s shares from Repsol YPF SA REP.MC +0.07%(REPYY, REP.MC).

S&P analyst Roberto Sifon Arevalo said in phone interview that Argentina’s fundamentals, viewed outside the context of the current political situation, might lead some to say the country merits a higher rating. But he noted that constantly changing policies are a concern and that the investment climate in Argentina is being hurt by this.

“It’s the level of uncertainty and unpredictability in policy” that is concerning, he said.

Analysts at Moody’s Investors Service earlier Monday said Argentina’s decision to take a controlling stake in YPF is a credit negative for the sovereign, as it will deter investment in the oil sector, raise concerns about respect for the rule of law, and strain the country’s worsening fiscal position.

Moody’s MCO +0.97% rates Argentina B3 with a stable outlook.

-By Nathalie Tadena, Dow Jones Newswires; 212-416-3287;

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