Fitch also said that Argentina's economy has slowed sharply this yearPhoto: AFP
11:55PM GMT 27 Nov 2012
Fitch cut its long-term rating for Argentina to "CC" from "B," a downgrade of five notches, and cut its short-term rating to "C" from "B". A rating of "C" is one step above default, AP reported.
US judge Thomas Griesa of Manhattan federal court last week ordered Argentina to set aside $1.3bn for certain investors in its bonds by December 15, even as Argentina pursues appeals.
Those investors don't want to go along with a debt restructuring that followed an Argentine default in 2002. If Argentina is forced to pay in full, other holders of debt totaling more than $11bn are expected to demand immediate payment as well.
Argentine politicians, even those opposed to President Cristina Fernandez, have nearly unanimously criticized the judge's ruling as threatening the success of the debt relief that enabled Argentina to grow again.
Ratings by agencies like Fitch are used by investors to evaluate the safety of a country's debt. Lower ratings can make it more expensive for countries to borrow money on the bond market, exacerbating their financial problems.
Argentina is in a deepening recession and is grappling with social unrest. Besides the court case, Fitch cited a "tense and polarized political climate" and public dissatisfaction with high inflation, weak infrastructure and currency.
Fitch also said that Argentina's economy has slowed sharply this year.
Of the two other major rating agencies, Standard & Poor's has a rating of "B-" for Argentina, five steps above default, and Moody's rates it "B3 negative", also five steps above default.