After Moody's, S&P ups Indonesia's sovereign ratings

After Moody's, S&P ups Indonesia's sovereign ratings

The Jakarta Post, Jakarta

Standard and Poor's (S&P) Ratings Services upgraded on
Wednesday the country's sovereign ratings for the second time
this year in the latest vote of confidence in the country's
fiscal and economic stability.

S&P raised its long-term foreign and local currency ratings on
Indonesia by one notch to 'B' from 'B-' and to 'B+' from 'B',
respectively. The short-term foreign currency rating was also
raised one notch to 'B', the same level as the short-term local
currency rating.

While stating that Indonesia needs to further cut its budget
deficit in coming years from an estimated 1.8 percent of gross
domestic product (GDP) this year, the agency acknowledged that
progress has been made in the past years.

The state budget's deficit has been on a decline over the past
three years. After posting a deficit of about 3.7 percent of GDP
in 2001, the country pushed down the deficit to 2.5 percent of
GDP last year, as part of a commitment to creating fiscal
consolidation.

Indonesia is also still suffering from a heavy debt burden,
although from time to time it has also shown continued signs of
declining, the agency said.

The debt-to-GDP ratio is expected to go down to 77 percent by
the end of the year, from close to a 100 percent in 2000.

The S&P upgrade came a week after Moody's Investors Services
-- another respected global rating agency -- also upgraded the
country's ratings on the back of a stronger external financial
footing and falling debts.

The country's stronger international reserves should mean that
it should have what it takes to retain investor confidence
without the presence of the International Monetary Fund (IMF)'s
special program, S&P said.

Indonesia reserves stand at about US$$33 billion, something
that should also reduce the country's vulnerability to external
shocks.

The IMF's special program runs out by year-end with the
government saying it would not ask for an extension.

The rupiah and stock market were helped by the sentiment
arising from the upgrade.

The rupiah ended the trading at 8,365 per dollar, slightly
stronger than 8,395 the day before, with dealers attributing the
S&P upgrade as among the reasons.

It was pretty much the same with the Jakarta stock market,
where trading closed higher at 624.33, up 1.5 percent from
Tuesday's close on the positive sentiment arising from the S&P
news.

Still, while painting the outlook for the new ratings as
stable, S&P also warned the government of the possible impact of
the political uncertainty as the country is now gearing up for
general elections next year.

"The ratings on the Republic of Indonesia are constrained by
political uncertainty," S&P said in a statement.

Traditionally, concerns are high during elections as it has
the potential to create instability, as political tensions
heighten.

But, "further improvement in the government's fiscal position,
together with the progress in structural reform, such as judicial
and governance reform and a relatively smooth electoral process,
Indonesia's creditworthiness could improve faster than most of
its peers," it added.