Indonesia seeks to improve debt rating<\/p>\n
JAKARTA (JP): The new economics team aims to improve the
\ncountry's credit rating from the current non-investment rating to
\ninvestment grade within six months, Coordinating Minister for the
\nEconomy Dorodjatun Kuntjoro-Jakti said on Tuesday.<\/p>\n
Dorodjatun said that the debt rating upgrade would allow both
\nthe country and its business sectors to tap international funds
\nat an affordable cost.<\/p>\n
"We will immediately seek to improve our image before the
\ninternational community," Dorodjatun told reporters at a press
\nmeeting following the first economic ministers' meeting of the
\nnew government.<\/p>\n
"If we achieve that, we can return to the international money
\nmarket," he said.<\/p>\n
International rating agencies had cut the country's debt
\nrating to non-investment grade due to domestic political problems
\nand economic woes.<\/p>\n
Standard & Poor's has assigned a CCC+ on Indonesia's long term
\nforeign currency rating, according to Dorodjatun.<\/p>\n
He said with a CCC+ rating, Indonesia has been classified as a
\nnon-investment country by the rating agency.<\/p>\n
He expected Indonesia's economy and political conditions to
\ncontinue to progress sufficiently well within the next five to
\nsix months for a rating of BB.<\/p>\n
Last week Dorodjatun said Indonesia's low credit rating made
\nit difficult to seek affordable funds from the money market.<\/p>\n
"Our rating isn't good, the additional interest spread that
\nshows Indonesia's risk, is still high," he said.<\/p>\n
"They (Standard & Poor's) won't disclose the interest spread,
\nbut my guess is that it's well above the American government
\nbonds, which is a world benchmark," he added.<\/p>\n
He said the spread could be as high as 600 to 700 basis
\npoints, where 100 points reflects 1 percent.<\/p>\n
"For developing countries the usual spread should be around
\n300 to 400 basis points, or 3 to 4 percentage points above the
\n10-year U.S. bonds," he explained.<\/p>\n
By Standard & Poor's definition, an insurer rated CCC is
\ncurrently vulnerable and is dependent upon favorable business,
\nfinancial and economic conditions to meet its financial
\ncommitments.<\/p>\n
At BB, the insurer is less vulnerable, but faces major ongoing
\nuncertainties and exposures to adverse business, financial or
\neconomic conditions.<\/p>\n
These could lead to the insurer's incapacity to meet its
\nfinancial commitments.<\/p>\n
Dorodjatun said that at BB, Indonesia's importers would find
\nit easier to open a Letter of Credit (L\/C) with foreign banks.<\/p>\n
"With BB, importers don't have to go to Singapore or Hong Kong
\nto open L\/Cs," he said.<\/p>\n
An L\/C is a payment guarantee issued by a bank to temporarily
\ncover the payments of its customer to a foreign bank.<\/p>\n
Since the 1997 economic crisis struck the country, many local
\nbanks' L\/Cs have been rejected by their foreign counterparts.<\/p>\n
But the real benefit of an improved credit rating was the
\ncheaper foreign funds required to invest in Indonesia.<\/p>\n
Economist Faisal Basri said the government would lend the
\neconomy a major boost if it could improve Indonesia's rating.<\/p>\n
"If the credit rating improves, foreign investment will
\nreturn, debt burden will ease, companies will get back on track
\nto reschedule their debts," he said.<\/p>\n
Faisal said the government could achieve a BB rating within
\nsix months time providing it does all its "homework."<\/p>\n
The preparation, he said, was taking the necessary measures to
\nmeet the 2001 state budget deficit target of 3.7 percent of gross
\ndomestic product and drafting the 2002 state budget prior to the
\nmeeting of the Consultative Group on Indonesia (CGI).<\/p>\n
CGI groups together Indonesian donor countries to help it
\nfinance its development spending.<\/p>\n
Dorodjatun said earlier Indonesia must present to the CGI a
\nclean and convincing state budget, as a prerequisite for
\nreceiving the group's aid.<\/p>\n
The CGI meeting is slated for October and Dorodjatun said he
\nhoped the meeting would be held in Jakarta.<\/p>\n
Securing a lending agreement with the International Monetary
\nFund (IMF) was another target the government must meet, Faisal
\ncontinued.<\/p>\n
Credit rating agencies have cut Indonesia's rating partly on
\nthe IMF's suspension of its loan program to the country late last
\nyear after the previous government failed to implement a number
\nof major economic reform programs.(bkm\/03\/tnt)<\/p>",
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