By Marcela Valente
BUENOS AIRES, Feb 13 2000 (IPS)

In its first two months in office, the government of Fernando de la Rúa has already obtained a show of restored foreign investor confidence in Argentina.

But analysts caution that it is only a first step towards lowering the cost of credit and boosting the competitiveness of the productive sector.

The government celebrated a report by the US debt-rating agency Standard & Poor’s Fund Research, which although it did not upgrade Argentina’s BB credit rating, it did withdraw its threat to downgrade it, which according to analysts had hurt the influx of capital.

“This if very good news, which will have positive repercussions in the medium-term,” said Secretary of Finance Daniel Marx.

The official said Argentina would begin to obtain better interest rates on the placement of 120 billion dollars in foreign public debt bonds.

While credit-rating agencies take into consideration the performance of a country’s macroeconomic indicators, they basically observe the volume of foreign debt and capacity to pay up, which is strengthened by a balanced budget and rising exports.

The Argentine economy contracted nearly four percent in 1999, while unemployment stood at 14.2 percent. This year, Gross Domestic Product is expected to grow by about four percent, while the unemployment rate should remain unchanged.

In mid-1999, Standard & Poor’s judged Argentina’s prospects as negative, and there were fears that early this year the agency would downgrade its rating. But instead, the agency’s risk assessment analysts changed the country’s status from negative to stable, much to the relief of the new government.

“Investors are already looking at us more kindly,” said former under-secretary of external financing Miguel Kiguel, who said that could indicate the beginning of a move towards earning investment grade status, which would throw open the door to a flood of capital.

The BBB investment grade status which Brazil and Mexico are also seeking would allow Argentina to obtain credit – for both the public and private sectors – with a 50 percent lower interest rate than the one currently paid, which includes a surcharge resulting from insufficient confidence among investors.

Upon taking office in December, the De la Rúa administration committed itself to cutting public spending through a series of drastic austerity measures, and adopted fiscal adjustment measures and several tax hikes.

After seeing the measures approved by Congress, economic officials were able to sign an agreement with the International Monetary Fund (IMF) for a seven billion dollar loan package.

The government, meanwhile, is working on an initiative to support small and medium companies, while seeking agreement on labour reforms that De la Rúa’s predecessor, Carlos Menem, was unable to push through parliament in his 10 years in power.

“Argentina did an about-face. Things are starting to look up,” said Standard & Poor’s analyst Bruno Boccara.

He warned, however, that it would not be easy, at least in the short-term, to make the leap to investment grade status, which is already enjoyed by Chile and Uruguay, two of Argentina’s partners in the framework of the Southern Common Market (Mercosur) trade bloc.

Other consultancy firms, like ING Baring, agreed that the good news was justified by the performance of Argentina’s macroeconomic variables and the new government’s short track record, which the market has already responded to with a rise in stock market values.

Nevertheless, Boccara was cautious. “Going from negative to stable is less difficult than moving from stable to positive. All we are saying is that there are no reasons to believe that the credit rating will be reduced in the medium-term, because the economic situation stopped going downhill.”

Standard & Poor’s representative in Argentina Diana Mondino said the new rating was based on a number of signals that demonstrated “very active efforts, in the right direction.”

The BBB investment grade to which Latin America’s economies aspire was earned by South Korea in just five months of recovery. But Mondino does not believe that Argentina could win investment grade status in such a short time.

Upgrading would allow the country to save between three and five billion dollars a year, which seems to be the goal of the government which, for now, is focusing most of its energy on attracting foreign capital.

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