The ratings on the Republic of Argentina are constrained by the government's limited access to financing, the economic policy uncertainties that have been contributing to the double-digit inflation rate, and the government's spending rigidities, which are characterized by increasing participation of subsidies. The ratings are supported by the ongoing--though declining--current account surpluses, the strong reserve buffer, the skilled labor force, and the diversified economy. Argentina is succeeding in reducing its debt levels. We expect its net general government debt to reach 38% of GDP by year-end 2011, down from about 75% as of year-end 2005. The improvement stems partially from small reported deficits or balanced budgets and the impact of the double-digit inflation rate on the nominal GDP denominator. Argentina
