Fitch Sees Argentina Defaulting or Restructuring Debt, Whoever Wins Election

Todd Martínez, a senior director at the ratings agency, believes it will be difficult to avoid a restructuring following the general elections, and sees dollarization unlikely

Argentina to Default or Restructure Debt, Irrespective of Election Result, Fitch Says.
October 20, 2023 | 05:20 PM

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Buenos Aires — On Sunday, October 22, Argentina will elect a president and the country may see a shift in its political and economic profile if Javier Milei, the candidate of La Libertad Avanza, wins, and who proposes, among other measures, a strong fiscal adjustment, the elimination of the central bank and the dollarization of the economy.

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Such dollarization, according to Todd Martínez, a senior director at Fitch Ratings, is “unlikely” in the next few years, due to the political challenges that Milei will face, given the scarce political structure he will have in the event that he takes office, but also due to the technical difficulties to carry out this initiative.

However, there is one thing that Argentina will not escape whoever wins this Sunday’s elections or whoever triumphs in a possible run-off vote on November 19: debt restructuring or default.

Argentina, which is burdened with a debt of over $40 billion with the International Monetary Fund, and without access to the capital markets, is rated “CC” by Fitch Ratings. “So no matter who will be the next president, we see a debt restructuring or default as the most possible scenario, it is not inevitable but it is the most possible,” Martínez said in an interview with Bloomberg Linea.


This scenario, Martínez believes, is the most likely to occur regardless of whether Economy Minister Sergio Massa, or the candidate of Juntos por el Cambio coalition, Patricia Bullrich, wins.

Fitch Ratings logodfd

Dollarization “unlikely”

Milei proposes eliminating the peso and moving toward a competition of currencies in which, according to the libertarian candidate, the dollar will prevail. This process, however, will not be simple. For Martinez, it is “unlikely” that a dollarization will take place in the next few years, and he assigned only a 25% probability that this will happen.

The concerns that Martínez and Fitch observe about Milei’s proposals, to which they add “an ambitious fiscal and monetary adjustment”, are due to “the political viability of these proposals, regarding the support they may have in Congress, society and among provincial governors”.


The concern is not only political, but also technical. “A dollarization can be very painful without dollars,” said Martinez. “Argentina has no dollars in the central bank so a dollarization would have to be with an extremely high exchange rate, which can impact in a devastating way on the savings of Argentines.”

He sowed doubts, in turn, about Milei’s chances of attracting dollars from investment funds or the global community. “We are skeptical that investment funds and the global investment community are looking forward to getting involved in Argentina. Even if they do, we doubt that this is the beginning of a successful stage of dollarization.”

Martinez does not see dollarization as a terrible idea, but envisions it for the long term after a sustainable process of fiscal and monetary correction.

“For it to be successful, a very hard internal task needs to be done, that implies fiscal and monetary adjustments and a path to eliminate restrictions that will take time. A dollarization will likely only be possible after these steps are fulfilled.”

Javier Milei’s Plan: A 14% GDP Reduction in Government Expenditure