BUENOS AIRES:
Argentina's peso ended a tumultuous week Friday having shed 20 percent in its
value against the US dollar as both Fitch and S&P cut the South American
country's long-term credit rating, citing increased uncertainty and a rising
risk of default.

The peso gained
2.75 percent to trade at 58.12 to the dollar on Friday, after several days of
freefall were halted Thursday following a joint appeal for calm by President
Mauricio Macri and his center-left rival Alberto Fernandez. But the outlook
remains uncertain after markets went into turmoil following Macri's crushing
defeat by the populist Fernandez in nationwide primary polls on Sunday.

"The
Argentine peso has stabilized over the past few trading days but the collapse
earlier this week has made a sovereign debt default highly likely," said
analysts Capital Economics in a note. Ratings agency Fitch downgraded the
crisis-hit government's credit rating two notches to "CCC" from
"B." Standard & Poor's dropped it a single grade from
"B" to "B-."

"The
pronounced turbulence of the financial market, with a significant depreciation
of the Argentine peso and a rise in interest rates... has significantly
weakened the already vulnerable financial profile," added S&P.  "The downgrade of Argentina's ratings
reflects elevated policy uncertainty... a severe tightening of financing
conditions and an expected deterioration in the macroeconomic environment that
increase the likelihood of a sovereign default or restructuring of some
kind," Fitch said in its announcement.

Increased risk

Fitch said the
center-right's crushing political defeat in the primaries "increases risks
of a break from the policy strategy of the current administration of Mauricio
Macri guided by a program with the IMF." Fernandez, now the clear favorite
to unseat Macri in October's presidential election, has questioned the reform
program backed by a $56 billion rescue package from the International Monetary
Fund.

The country is
currently in a recession and posted 22 percent inflation for the first half of
the year-one of the highest rates in the world-but the IMF said Macri's reform
program was beginning to yield results. Macri reacted on Wednesday by
announcing salary hikes and tax cuts in a bid to win back voters with the
October 27 presidential election looming.

Macri said the
measures would "benefit 17 million workers and their families and all
small and medium-sized businesses, formal and informal, state and
private." He also announced an unspecified increase in the monthly minimum
wage-currently 12,500 pesos, or $208 -- saying it would benefit two million
workers. In Buenos Aires, the sudden crisis left many businesses reeling.
"It took us by surprise," said Juan Manuel Bujia, commercial manager
of the Rodo home appliance chain that employs 400 people.

"A lot of
people anticipating the increases have been coming in to buy knowing prices are
going to be higher next week and next month," Bujia told AFP. He said his
suppliers had already priced in 10 percent increases on Argentine products and
up to 15 percent on imports. "We are trying to pass on as little as
possible" to customers, he said. US retailer Walmart, which has 92
branches in Argentina, said it had seen a 15-20 percent hike in sales volumes
between Monday and Wednesday and had not yet increased prices. "It happens
to us when there is a foreign exchange movement and people want to beat any
price shift, especially with essentials like oil, sugar, flour, yerba mate and
some dairy products," Walmart official Juan Pablo Quiroga told AFP.

Quiroga said some
suppliers had notified the retailer of price increases "from the end of
this week or next week." Buenos Aires has a fraught history with the IMF,
and Fitch said "policy credibility and market access could still be
severely tested amid weak economic conditions, high public debt and
inflation." Argentina defaulted on its debt in 2001 during the worst
economic crisis in its history, and it took years before it could restore its
credibility in world financial markets. Fernandez said this week he considered
an exchange rate of 60 pesos to the dollar as "reasonable" and said
it should no longer fluctuate wildly. Going into last weekend's primary
elections, the peso was trading at 46.5 to the dollar. - AFP