Credit rating agency Moody’s upgraded Argentina’s rating on Friday, citing substantial progress under President Javier Milei’s economic reforms and the country’s improved fiscal health. The rating was raised from Ca to Caa3, with the outlook shifting from stable to positive. This marks the first upgrade in five years, as Milei’s policies begin to show promising results in stabilizing the Argentine economy.
Despite the upgrade, Argentina remains in junk territory, but the change reflects growing confidence in the country’s fiscal trajectory. Moody’s noted that the reforms have significantly reduced the risks of a potential debt default. “Argentina’s credit fundamentals have improved over the past year, thanks to effective policy measures that have stabilized the macroeconomic environment,” the agency said.
Economic Reforms and Financial Improvements
Milei, known for his libertarian stance and free-market reforms, has taken bold steps to revitalize Argentina’s ailing economy. Inflation, which was rampant when Milei assumed office, has begun to slow significantly. Government spending has been drastically reduced, and the fiscal deficit is narrowing. By November 2024, Argentina posted a small surplus of 0.1% of GDP, a sharp reversal from a deficit of 4.4% of GDP at the same time in 2023.
Milei’s government has made strides in addressing Argentina’s unsustainable debt levels. After debt peaked at 156% of GDP in 2023, Moody’s estimated that the figure fell to 77% by the end of 2024, with a projected further decrease to 50% by 2026. These fiscal improvements have been supported by Milei’s aggressive economic policies, which include cutting subsidies, slashing government payrolls, and implementing widespread deregulation.
Milei’s “Shock Therapy” and Its Consequences
Milei’s dramatic economic overhaul, which has included reducing government spending and cutting more than 900 regulations, has drawn mixed reactions. His policies, which have earned him the nickname “el loco” (the crazy one), have notably curtailed unnecessary bureaucratic red tape, including rules that allowed government workers to pass jobs on to their children and regulations on selling “normal” potatoes. These actions have garnered praise from free-market advocates, including figures like Elon Musk, who has supported Milei’s deregulation efforts.
However, these swift reforms have not come without costs. Moody’s estimates that Argentina’s GDP contracted by 3.5% in 2024 due to the impact of austerity measures. Despite this, the agency predicts a rebound with 3% growth in 2025. Inflation remains high but has improved since Milei took office, with the annual rate dropping from 211% in December 2023 to 166% in November 2024. Moody’s expects inflation to decrease further to 40% in 2025.
Fiscal and Monetary Shifts Strengthen Investor Confidence
A key element of Argentina’s recovery has been the introduction of a tax amnesty, which has successfully repatriated $20 billion in assets from abroad. In addition, new policies aimed at attracting foreign currency inflows have helped bolster Argentina’s international reserves. Moody’s highlighted the positive effects of these shifts, noting that the country’s fiscal and monetary reforms, along with a more favorable external financial environment, have renewed confidence in Argentina’s domestic private sector and credit markets.
Despite the improvements, Moody’s cautioned that there are risks, including the potential for volatility from eased capital controls. Excessive optimism could lead to an overstimulated economy and create imbalances. The agency emphasized that a new agreement with the International Monetary Fund (IMF) would further enhance investor sentiment and provide a more stable funding base for Argentina, particularly in its key growth sectors.
Outlook for Argentina’s Growth
Looking ahead, Moody’s sees potential for Argentina to attract significant foreign investment, particularly in its energy sector, which is rich in natural hydrocarbons. This could improve the country’s export prospects and fuel economic growth, strengthening its overall credit profile.
While challenges remain, including inflationary pressures and the need for continued fiscal discipline, Argentina’s recent reforms have set a more optimistic course for the country’s economic future. The progress made so far, combined with Milei’s bold vision for transforming Argentina’s economy, has sparked renewed confidence from both international credit agencies and foreign investors.
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