Argentine economy vulnerable while political risk persists: Moody's

BUENOS AIRES: Argentina's economy will remain subject to shocks until clarity emerges regarding the country's October presidential election, Gabriel Torres, senior credit officer at ratings agency Moody's, said in an interview with Reuters.

The country's peso currency, as well local stock and bond markets, have been buffeted in recent days amid protests over the policies of Mauricio Macri, a free-markets advocate who won the presidency in late 2015 with wide support from investors.

More than three years into his first term, Macri's re-election is less than certain as his government strains to jumpstart a shrinking economy while cutting the fiscal deficit and trying to tame one of the world's highest inflation rates.

Previous Argentine leader and possible October candidate Cristina Fernandez, a free-spending populist with wide support among low-income voters, has risen in the opinion polls while discontent rises over Macri's policy of cutting public utility subsidies and other austerity measures.

"To the extent that it is not clear who is going to win, and that among the options is someone who wants to make a drastic change, political risk will be high," Torres told Reuters late on Monday. "Volatility will not go away this year."

Macri is the only politician to confirm his candidacy so far. Roberto Lavagna, a former economy minister and part of the moderate flank of the Peronist opposition, also may run.

"We're looking for a future outside the two extremes that have been dominating Argentine politics for the last eight years," Lavagna told reporters on Tuesday.

Moody's estimates the Argentine economy will contract 1.5 percent this year, with an inflation rate of 35 percent. Torres said that if the candidates agreed to continue Macri's market-friendly reforms, the economy would benefit.

"I do not know what Lavagna or Cristina are going to propose if they become candidates. I'd like to know, because until now they have not been clear," Torres said.

Amid steep losses in the value of the peso last year as Argentina's debt load increased, Macri was forced to negotiate a $56 billion standby financing deal with the International Monetary Fund. Under the deal, his government promised to erase its primary fiscal deficit this year.