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Tuesday, August 5, 2014

Argentina and 10 More Countries Near Bankruptcy

Argentina defaults on its debt. Ten more countries are near bankruptcy.

The third-largest Latin American economy Argentina failed to make scheduled payments on its government bonds at the end of July. Credit agency Moody's Investors Service reported a spike in Argentina’s one-year Sovereign EDF (Expected Default Frequency) to 48% in one week. “Amid increasing concerns that Argentina’s default will exacerbate its ongoing recession, the country has the highest one-year probability of default of any of the 84 sovereign entities in our data set,” says the report. 

Argentina failed to come to an agreement with its creditors and reached the end of a 30-day grace period to make good on its payments. As a result, Moody affirmed Argentina’s Caa1 issuer rating and changed the country’s outlook to Negative from Stable, as its rival agency S&P downgraded the country to SD from CCC rating. A Caa1 rating is well below the first level of bad rating Ba1, which already indicates a significant credit risk. An SD, in the S&P scale, is next to worst.

Ten other countries listed by Moody have a rating of Caa1 or worse - that is, they too are at risk of default. Each of these nations has its own unique problems. Ukraine, for example, was downgraded because of political instability, while Belize had its credit rating upgraded in recent years because of improved economic conditions.

Before the default, the gold market seemed to ignore Argentina, but the future is very uncertain given the crisis in Ukraine, the Russian sanctions, and the Middle East crisis. Perhaps a safe-haven bid for the gold market is on its way.

Here’s the list of countries with a bad credit rating in the Moody scale:

Moody's credit rating: Caa1; Moody's outlook: Negative

Moody's credit rating: Caa2

Moody's credit rating: Caa2

Moody's credit rating: Caa3

Moody's credit rating: Caa1

Moody's credit rating: Caa1

Moody's credit rating: Caa3

Moody's credit rating: Caa3

Moody's credit rating: Caa1

Moody's credit rating: Caa3

Moody's credit rating: Caa1

Article sources:

USA Today article

Moody report

Image by KenWalker

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