Argentina Eyes Investment Grade After S&P Upgrade to B-

Argentina, on the threshold of investment grade

In a day that will hardly go unnoticed in the country's financial annals, Argentina received a double endorsement from its creditors on Thursday: May inflation slowed for the second consecutive month to 2.1%, the lowest level since last September, while Standard & Poor's lifted the sovereign rating from CCC+ to B-, matching the move Fitch Ratings had made in May. The market response was immediate and emphatic: the country risk gauge compiled by JP Morgan plunged 60 points, breaching for the first time in eight years the 450 basis-point threshold to close around 442, while the S&P Merval climbed 6.9% to a fresh nominal record of 3.37 million points and Argentine ADRs on Wall Street rose as much as 14.3%, led by Banco Francés, Supervielle and Banco Macro.

Indec confirmed that core CPI broke below the 2% monthly mark, printing 1.9%, four-tenths under April's reading, a sign that disinflation has some structural traction beyond regulated prices. Even so, the year-on-year figure climbed from 32.4% to 33.2% owing to base effects, and the total basic basket for a typical family brushed up against $1.5 million in May, a reminder that stabilization has yet to reach the pockets of most Argentines. Cumulative inflation in the first five months of the year stands at 14.7%.

S&P grounded the upgrade in the combination of fiscal surpluses, accumulation of international reserves, and broadened access to financing sources, both private and multilateral. The agency cautioned, nonetheless, that "tensions persist over the next 12 to 18 months," though it ruled out a default scenario. Todd Martínez, senior director at Fitch and co-head of sovereigns for the Americas, was more direct: "Reserves are improving, but they remain low, and a lot of dollar-denominated debt matures in 2027," he said in Buenos Aires. In practical terms, the upgrade means pension funds, insurers and institutional investors that were barred from holding Argentine assets under a CCC rating can now add them to their portfolios, opening a potential flow of capital that analysts such as tax expert César Litvin estimated could mobilize some USD 50 billion in undeclared assets into the formal economy.

Against that backdrop, the Treasury seized the momentum: the Finance Secretariat placed USD 200 million in Bonar 2028 at an annual rate of 8.53%, in an auction that drew bids worth $7.4 trillion against smaller maturities, achieving a 120% rollover and stretching tenors out to 2028 and beyond. Cumulative placements of this instrument now exceed USD 1.534 billion, with USD 466 million still available to complete the quota earmarked to cover the July Globales maturity of USD 4.3 billion. The Central Bank, meanwhile, strung together 104 consecutive sessions as a net buyer in the FX market, with gross reserves at USD 47.558 billion, while the wholesale dollar shed 8.50 pesos on Wednesday to close at $1,432.50, moving further away from the FX band ceiling set at $1,776.27. Deputy Economy Minister José Luis Daza was emphatic before businessmen gathered by Fitch: "Don't bet on a devaluation to save your business; the supply of dollars ahead is very strong."

That abundance of foreign currency has a new structural engine. According to a report by consultancy 1816, energy and mining contributed during the first four months practically the same amount of dollars as agriculture: roughly USD 8.15 billion each. YPF posted a first-quarter profit of USD 409 million, the best result in its history, in contrast with a negative USD 10 million in the same period a year earlier. Transportadora de Gas del Sur formally approved the Final Investment Decision for the NGL Project, a USD 3 billion bet to export gas-derived liquids from Vaca Muerta out of Bahía Blanca, with supply agreements already signed with YPF, Pluspetrol and Chevron covering more than 80% of planned capacity. Mining, for its part, projects exports of more than USD 9 billion in 2026, with lithium carbonate now firmly established among the country's ten most-exported products. Río Negro completed its first-ever shipment of gold and silver, from the Calcatreu project to Canada.

The flip side of this export boom is an industrial sector that has yet to recover. According to estimates by ACM, manufacturing activity remains 4.9% below the level registered in November 2023. Twelve of the sixteen industrial divisions posted year-on-year declines in April. Acindar, of the ArcelorMittal group, announced a fresh shutdown of its steel mill in Villa Constitución between June 15 and 18, accumulating a surplus of 10,000 tons amid weaker-than-expected sales. Gustavo Weiss, president of the Argentine Chamber of Construction, was scathing: "We lost 120,000 jobs and have recovered only 5,000." The economy, in the words of economist Ricardo Delgado of Analytica, "is moving at two speeds, highly heterogeneous." The minimum living and mobile wage has accumulated a 39.3% drop between 2023 and 2026 and stands, according to a UBA study, below its purchasing power during the 2001 crisis.

On the regulatory front, the Comisión Nacional de Valores formalized the so-called regulatory "Big Bang": starting Friday, most debt issues under roughly USD 130 million will not require prior authorization, under the new automatic-approval regime. CNV chairman Roberto Silva compared the move to the deregulation of the London Stock Exchange in 1986. Simultaneously, ARCA issued the regulations for the Registered Employment Promotion Regime, which allows private-sector employers to formalize undeclared workers with debt write-downs of up to 90% and payment plans of as many as 72 installments, in a country where labor informality reaches 43% of wage earners.

The World Bank, for its part, trimmed its growth projection for Argentina by 0.4 percentage points to 3.6% for 2026, although the figure still outpaces the global average of 2.5%, weighed down by the escalating conflict in the Middle East. Santiago Bausili's Central Bank traveled to Shanghai to advance the renewal of the swap line with China, which expires on August 6 and amounts to some USD 19.2 billion.

What lies ahead leaves little doubt about the variables that matter: the third of the major rating agencies, Moody's —