S&P raises Indonesia's rating, boosts sentiment<\/p>\n
Tom Wright, Dow Jones, Jakarta<\/p>\n
Foreign investor sentiment toward Indonesia got a further boost
\nMonday from a decision by Standard & Poor's to upgrade the
\ncountry's credit rating by one notch.<\/p>\n
Although widely expected, the move nevertheless represents a
\nvote of confidence in the government's bid to cut its public
\ndebt, and comes at a time when the country is looking to end its
\nreliance on the International Monetary Fund and to tap the
\ninternational debt market for the first time since the 1997-98
\nAsian crisis.<\/p>\n
S&P moved Indonesia's foreign currency rating to B-minus with
\na stable outlook from CCC-plus. It cited the country's success in
\nreducing public debt, which means Indonesia will be able to repay
\nits borrowings coming due from next year rather than relying on
\nthe IMF and foreign creditors for rescheduling. The upgrade
\nbrings the rating into line with Moody's B3 grade.<\/p>\n
The rupiah strengthened to a 32-month high of Rp 8,435 per
\nU.S. dollar on the upgrade news.<\/p>\n
S&P's move reflects a broader optimism toward Indonesia in
\nrecent weeks, which has helped push the rupiah and stocks higher.<\/p>\n
The stock market is up 25 percent since mid-March.<\/p>\n
Still, risks remain that Indonesia's government will come
\nunder pressure during next year's presidential elections to
\nreverse some of its expenditure curbing measures, which could
\nhurt its ratings, S&P said. Huge corruption in the bureaucracy
\nand legal system heightens these concerns.<\/p>\n
\"The confidence which the government is enjoying is still
\nrelatively volatile,\" Takahira Ogawa, sovereign ratings head for
\nS&P in Singapore, told Dow Jones Newswires. S&P is unlikely to
\nraise its rating again in the next year, he added.<\/p>\n
Nevertheless, political stability under President Megawati
\nSoekarnoputri - who came to power in July 2001 - has allowed the
\ngovernment to push through economic reforms aimed at reducing
\ndebt. Total public borrowing is now about US$130 billion, below
\nthe annual gross domestic product for the first time since the
\n1997-98 regional crisis due to a number of fiscal belt-tightening
\nmeasures, including cutting expensive government subsidies on
\nfuel and utilities.<\/p>\n
Improved confidence has helped boost the rupiah and bring down
\ninflation, allowing the central bank to cut rates. Bank Indonesia
\ndeputy governor Miranda Goeltom said on Monday the benchmark one-
\nmonth Bank Indonesia SBI notes could fall to 10.50 percent by the
\nend of this year, from 10.91 percent currently.<\/p>\n
Lower rates, in turn, are helping reduce the amount of money
\nthe government spends yearly on keeping its banking sector
\nafloat. The government issued $40 billion in bonds after the
\ncrisis to recapitalize commercial banks' balance sheets, and many
\nof these bonds pay interest linked to SBI rates.<\/p>\n
\"The currency is still rallying, and with every reduction in
\ninterest rates, fiscal consolidation becomes slightly easier,\"
\nDeutsche Bank said in a research note after the upgrade.<\/p>\n
The ratings agency also upped its credit ratings of a number
\nof top Indonesian banks to reflect the improved operating
\nenvironment since the crisis. The credit rating on Bank Mandiri,
\nBank Negara Indonesia, and Bank Danamon Indonesia moved to B from
\nB-minus.<\/p>\n
Given its improving finances, Indonesia has said it won't ask
\nthe IMF to extend its current $5 billion lending program when it
\nruns out at the end of this year. Without an IMF program,
\nofficial foreign creditors - known as the Paris Club of lenders -
\nhave said they won't agree to restructure debt coming due from
\nnext year.<\/p>\n
S&P said it believed Indonesia would be able to repay the $6.5
\nbillion in loan principle due between 2004 and 2008 if it
\ncontinues to carefully manage its finances.<\/p>\n
Indonesia's finance ministry said this month it is mulling
\nissuing global bonds to help refinance some of that debt,
\npossibly in early 2004. Issuing local bonds and asking for larger
\ncontributions from multilateral lenders such as the World Bank
\nare other alternatives to meeting the country's funding needs.<\/p>",
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