Govt debt rating target difficult: Analysts<\/p>\n
JAKARTA (JP): The new economic team's plan to upgrade the
\ncountry's credit rating from CCC+ to BB within six months may
\nprove to be a difficult task, with a gaping state budget deficit
\ncrippling the country's ability to repay debts, analysts said on
\nWednesday.<\/p>\n
Citibank vice president, economist Anton Gunawan, said that
\nongoing concerns over budget sustainability made a drastic rating
\nimprovement difficult to achieve.<\/p>\n
"The government must seek ways to improve its cash flow,"
\nAnton told The Jakarta Post.<\/p>\n
He said a better cash flow would show investors Indonesia's
\nimproved ability to repay both local and foreign debts.<\/p>\n
On Tuesday, Coordinating Minister for the Economy Dorodjatun
\nKuntjoro-Jakti said he would seek to upgrade Indonesia's rating
\nto increase the flow of foreign investment and lower the cost of
\nborrowing funds from overseas.<\/p>\n
Investment has been hampered in Indonesia, with ratings agency
\nStandard & Poor's classifying Indonesia's long term foreign
\ncurrency rating as CCC+.<\/p>\n
At CCC+, Indonesia is designated as a non-investment country,
\nmeaning bond issuers here are vulnerable to payment defaults due
\nto adverse business conditions.<\/p>\n
Consequently, investors charge a high interest spread on
\nIndonesian bonds to cover its country risk.<\/p>\n
Anton said Indonesia's state budget best reflected the
\ngovernment's risk and payment abilities.<\/p>\n
Right now, the government faces payment difficulties due to
\nhigher expenditure and missed revenue targets during the first
\nsemester, he said.<\/p>\n
In that period, a weaker than expected rupiah and soaring
\ninterest rate led to doubts as to whether the 2001 budget deficit
\nof 3.7 percent could be achieved.<\/p>\n
Political instability affecting market sentiment has also
\nstalled the government's asset sale and privatization programs.<\/p>\n
Divesting government stakes and selling off state assets is
\nexpected to help plug the deficit margin.<\/p>\n
"Thus far, our privatization proceeds amount to zero," Anton
\nsaid, referring to the government's plan to reap in Rp 6.5
\ntrillion (about US$773.80 million) through its massive selloff.<\/p>\n
With the return of political stability, however, most analysts
\nexpect an economic turnaround in the second half.<\/p>\n
Analyst Wi Wan at PT Vickers Ballas Tamara warned that an
\nupgrade from CCC+ to BB was too ambitious for the government to
\nachieve within six months.<\/p>\n
"Even under normal circumstances the jump to a BB rating
\nsounds difficult to achieve," he added.<\/p>\n
He said Indonesia must pass four levels; the first one from
\nCCC+ to B-, then B+, BB- and finally BB+.<\/p>\n
"Also, ratings usually go down faster than they go up," Wi Wan
\nadded.<\/p>\n
Erwin S. Widjojo of Mega Capital Indonesia, formerly known as
\nIndovest Securities, said hopes for an improved rating depended
\non Indonesia mending ties with its donor countries.<\/p>\n
With the International Monetary Fund (IMF) almost certain to
\napprove a lending agreement with Indonesia, he said, the
\ngovernment was likely to earn a rating upgrade.<\/p>\n
A deal with the IMF would pave the way for the Paris Club
\ngroup of creditors to approve the rescheduling of $2.8 billion in
\nsovereign debts.<\/p>\n
That should relieve the pressure of paying the debts this
\nyear.<\/p>\n
On the back of these deals, the government seeks to secure new
\nloans from the Consultative Group for Indonesia (CGI).<\/p>\n
Erwin said the CGI loans would help the 2002 state budget,
\nthus further enhancing Indonesia's payment capability.<\/p>\n
He added that Indonesia's abundant natural resources also
\nremained an effective support for its credit rating.<\/p>\n
"Investors rely on Indonesia's natural resources to pay back
\nits debts," he said.<\/p>\n
However, he said, Standard & Poor's rating also depended on
\nwhether current political stability would prevail.(bkm)<\/p>",
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