RI's ratings still hinge on debt talks<\/p>\n
Jennifer Chen, Reuters, Singapore<\/p>\n
Ratings agency Standard & Poor's said on Tuesday Indonesia's
\nlong-term sovereign ratings are still at risk of a downgrade to
\n"selective default" despite recent positive economic and
\npolitical developments.<\/p>\n
Indonesia's ratings hinge on whether Paris Club creditors will
\ndemand equal treatment for private lenders in rescheduling the
\ncountry's huge debt burden at crucial talks next month, Takahira
\nOgawa, director of sovereign ratings at S&P in Singapore, told
\nReuters.<\/p>\n
The agency has said previously that it would downgrade
\nIndonesia to selective default if the Paris Club insisted that
\nprivate lenders shoulder some of the burden of rescheduling.<\/p>\n
A downgrade to selective default would make it more difficult
\nfor the country to attract foreign capital and would force up the
\ncost of borrowing.<\/p>\n
S&P cut Indonesia's long-term sovereign debt rating to CCC
\nfrom CCC-Plus in November, citing the same concerns about private
\nlenders being asked to share the burden of restructuring.<\/p>\n
Boediono has been lobbying foreign creditors over the need for
\nIndonesia to reschedule around US$5.5 billion in debt, part of
\nthe country's total $140 billion in foreign obligations.<\/p>\n
The Paris Club is due to meet next month with Jakarta to
\ndiscuss rescheduling of interest and principal payments due in
\n2002 and 2003.<\/p>\n
The market has been debating whether private lenders will be
\nasked to share the pain of restructuring. Commercial loans, such
\nas $500 million in yankee bonds due in 2006, make up a sizable
\nportion of the country's formidable debt burden.<\/p>\n
Separately, Jakarta is seen trying to tackle endemic
\ncorruption with two high-profile cases. The parliamentary speaker
\nand leader of the former ruling Golkar Party Akbar Tandjung is on
\ntrial for graft and former president Soeharto's favorite son,
\nHutomo "Tommy" Mandala Putra is charged with murdering a judge
\nwho convicted him for corruption.<\/p>\n
Ogawa also noted a dispute between the central bank and
\nfinance ministry over the servicing of 144.5 trillion rupiah
\n($14.9 billion) in government bonds, which could have a serious
\nimpact on budget deficit figures for 2001 and beyond.<\/p>\n
The bonds were issued by the government to repay the central
\nbank for loans made to debt-laden private bankers in the 1990s.<\/p>\n
But the government is worried it will not be able to get
\nrepayment from the bankers and has refused to pay Rp 7.8 trillion
\nin interest on bonds due in 2001 until the central bank can
\nverify that the banker loans were properly made.<\/p>\n
The dispute has raised concerns among analysts that the burden
\ncould be placed on the central bank, and jeopardize its financial
\nposition and its yankee bonds.<\/p>\n
S&P's Ogawa said this was another unfortunate example of the
\ngovernment's confused way of dealing with the economy.<\/p>\n
"It is not quite clear to me who is in charge of economic
\npolicy," he said.<\/p>\n
Ogawa said the sale of Bank Central Asia (BCA) -- the
\ncountry's largest retail bank -- to U.S. investment firm Farallon
\nwas a step in the right direction for Indonesia.<\/p>\n
Nevertheless, he had reservations over the sale process and
\nwhether future assets sales would be successful.<\/p>\n
"The distance of this step might not be big. It's not a great
\nleap forward because the process is still unclear and there are a
\nlot of questions that remain," said Ogawa.<\/p>\n
Farallon won the bid for 51 percent of BCA earlier this month,
\nsurprising many in the market who had expected long-running
\nfavorite Standard Chartered Bank to win.<\/p>\n
Jakarta has said it awarded Farallon the deal because it had
\nfewer conditions than StanChart, though market talk still
\npersists as to whether a hedge fund can successfully run a bank.<\/p>",
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