Thomson cuts Indonesia's rating to B-<\/p>\n
HONG KONG (Agencies): U.S.-based credit agency Thomson
\nBankWatch cut the country and bank ratings for Indonesia
\nyesterday, citing the government's unwillingness to reform the
\neconomy and continued deterioration in the banking sector.<\/p>\n
The agency lowered Indonesia's sovereign risk rating to B-
\nfrom B+. It also cut the short-term local currency rating of
\nseven Indonesian banks to LC-3 from LC-2. They are Bank Bumi
\nDaya, Bank Dagang Negara, Bank Ekspor-Impor Indonesia, Bank
\nNegara Indonesia, Bank Tabungan Negara, Bank Pembangunan
\nIndonesia and Bank Rakyat Indonesia.<\/p>\n
Betty Starkey, director of sovereign risk at Thomson, said the
\ndelay in financing from the International Monetary Fund, 'coupled
\nwith the continued drawdown of foreign exchange reserves, has
\nexacerbated the country's solvency and liquidity problems.'<\/p>\n
The agency criticized Indonesia for 'backpedaling' from the
\nIMF program which eventually led to the delay in a disbursement
\nof funds.<\/p>\n
Starkey also warned hyperinflation and a severe downturn in
\neconomic growth 'threaten to fuel more widespread social and
\npolitical turmoil in the months ahead.'<\/p>\n
Starkey at Thomson held out little hope for future reforms,
\n'particularly in light of President Soeharto's recent cabinet
\nselections for his seventh term of office.'<\/p>\n
'The new policymakers do not provide much confidence that
\neconomic management and overall governance will improve anytime
\nsoon,' Starkey said. 'The prospects of the government delivering
\nquickly on the kind of reforms sought by the IMF remain dim.'<\/p>\n
Thomson also noted 'systemic risks' are intensifying at
\nIndonesian banks, with non-performing loans rising rapidly in the
\nwake of continued currency depreciation.<\/p>\n
An overall lack of confidence has drained bank deposits,
\nforcing the government to issue a blanket guarantee of all bank
\nobligations, a move that puts the country's fiscal position in an
\neven more precarious situation, the agency said.<\/p>\n
Moreover, most of the currency drained out of the deposits has
\nbeen U.S. dollars, raising concerns over the entire financial
\nsector's total U.S. dollar deposit position, Thomson said.<\/p>\n
In New York, the U.S. ratings agency Fitch IBCA on Monday said
\nit had downgraded Indonesia's long-term foreign currency rating,
\nciting the country's \"deteriorating\" political situation and
\ndisagreement with the IMF.<\/p>\n
Fitch also pointed to President Soeharto's weekend selection
\nof a cabinet, which it said was made up of \"loyalists,\" as
\nreinforcing \"the perception that the regime remains in denial.\"<\/p>\n
It said Indonesia's long-term foreign currency rating had been
\ndowngraded to B-minus from B-plus while the long-term local
\ncurrency was lowered to BB-plus from BBB-minus.<\/p>\n
The short-term foreign currency rating was maintained at B.<\/p>\n
\"President Soeharto's re-election for a seventh five-year term
\nwill do little to dispel the gloom surrounding Indonesia's
\npolitical and economic outlook,\" according to the agency.<\/p>\n
\"Mr. Soeharto is clearly opposed to implementing policies that
\nwould harm the interests of those closest to him.\"<\/p>\n
It warned that \"the deteriorating economic and financial
\nsituation raises grave concerns about Indonesia's capacity to
\nservice its external debt\" and said that unless the government
\nreached an agreement \"very soon\" with the International Monetary
\nFund it government could default.<\/p>\n
The IMF has said Indonesia has not sufficiently implemented
\nreforms it agreed to in exchange for US$43 billion in
\ninternational financial assistance.<\/p>\n
As a result, it has postponed until April the disbursement of
\na second installment -- worth three billion dollars -- in aid to
\nJakarta.<\/p>\n
Fitch said that compliance with the IMF would release as much
\nas $12 billion for Indonesia this year, providing much-needed
\nliquidity.<\/p>",
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