Fitch says US support helped Argentina ward off ratings downgrade

By Rodrigo Campos

NEW YORK, Oct 22 (Reuters) - U.S. support for Argentina's markets has prevented a downgrade of the South American country's credit rating, but the country needs a broader plan to rebuild foreign exchange reserves in order to earn an upgrade, Fitch Ratings said on Wednesday.

"The U.S. backstop is something that has helped Argentina ward off a ratings downgrade, the risks of which would have risen if the central bank had kept bleeding international reserves to defend the FX regime," Todd Martinez, co-head of the Americas for Fitch Ratings' sovereigns group, said in an email to Reuters.

Argentina's central bank said this week it signed a $20 billion exchange-rate stabilization agreement with the U.S. Treasury Department, part of a U.S. plan to support President Javier Milei's reform policies ahead of key midterm elections this weekend. The bank said on Tuesday it sold $45.5 million from its reserves to support the exchange rate.

U.S. Treasury Secretary Scott Bessent has said there is work being done on a $20 billion bank facility that could be used to purchase Argentina's bonds.

Martinez said such lifelines "aren’t sufficient to deliver a ratings upgrade unless they are part of a broader plan to enable a government to build up its own FX buffers, so that it will not need another lifeline down the road."

Argentina's international dollar bonds fell on Wednesday by around a cent each, while the peso strengthened marginally after setting a record closing low on Tuesday.

Financial markets initially took the U.S. support as a bullish signal but have been volatile ahead of midterm elections this Sunday as Milei's party seeks to strengthen its minority position in the legislature.