Life may have just got a whole lot tougher for Argentina’s Mauricio Macri a week after his shock primary-election defeat sent markets into a tailspin. The embattled president is suddenly grappling with the resignation of his economy minister and a double downgrade to the nation’s debt. It’s left some investors expecting a fresh bout of turmoil after a brief respite at the end of last week.
“This will inject more uncertainty,” said Nader Naeimi, the head of dynamic markets at AMP Capital Investors Ltd. in Sydney. “It puts a huge question mark over the creditworthiness of the country and is likely to further pressure the peso and Argentine bonds. We are staying out.”
Economy Minister Nicolas Dujovne, who led bailout negotiations between Argentina and the International Monetary Fund last year, stepped down on Saturday, saying in a letter to Macri that the country needs “significant renewal in the economic area.”
Local news media reported that Hernan Lacunza, economic minister for the province of Buenos Aires, will replace him.
The resignation came a day after Argentina’s credit profile was cut deeper into junk territory by Fitch Ratings and S&P Global Ratings. Both cited the possibility of a sovereign debt default.
“While Argentina has been trading at distressed price levels already, we expect further downside on this news as it highlights an increased likelihood of a credit event,” Citigroup Inc strategists including Dirk Willer wrote in a report.
The implied chance that Argentina will miss a debt payment, as measured by credit default swaps, soared last week as traders bet the primary result puts left-wing opposition leader Alberto Fernandez, who has vowed to undo some of Macri’s market-driven reforms, in an unassailable position in the lead-up to the Oct. 27 general election.
The Merval stock index lost 45% in dollar terms in the five days through Friday, bond prices tumbled about 30% and the peso weakened 18%.