BankWatch downgrades Indonesian rating

BankWatch downgrades Indonesian rating

JAKARTA (JP): Bank credit rating agency Thomson BankWatch
downgraded its sovereign risk rating for Indonesia from BB to B+
on the country's heightening political uncertainty.

Thomson BankWatch sovereign risk director Betty J. Starkey
said in a statement Monday, "This downgrade is based not only on
the country's deteriorating financial situation, but more
importantly on the heightening political uncertainty."

She noted the weakening public confidence in the country's
political leadership had surfaced over the past several days,
with signs of panic buying and hoarding on the part of local
consumers and mounting calls for President Soeharto to step down.

"Overall, these increasing political pressures have raised the
specter of a leadership crisis at a time of a deepening financial
and economic crisis," Starkey said.

BankWatch said it was especially concerned with the impact of
the drastic fall of the rupiah against the U.S. dollar over the
past week.

The rupiah has lost about 70 percent of its value against the
dollar since July.

"As a result, short-term debt pressures and the risk of
increased corporate bankruptcies have been exacerbated,"
BankWatch said.

"Now there is concern over whether the US$40 billion emergency
assistance package arranged by the International Monetary Fund
(IMF) last October will be sufficient to cover the country's
mounting financial obligations," it said.

Indonesia's outstanding foreign debt stood at $118 billion as
of last September, of which $65 billion was owed by the private
sector.

BankWatch also shared new doubts over the Indonesian
government's willingness to comply with the terms and targets of
the IMF assistance package.

It said the 1998/1999 draft state budget, announced last week,
disregarded the economic targets set by the IMF.

The agency shared others' criticism that projections used in
drafting the budget were unrealistic, especially those concerned
with the exchange rate, annual economic growth and inflation.

"With most private forecasts predicting economic recession and
double digit inflation this year, the government's budgetary and
economic goals could prove difficult to meet," it said.

Starkey continued: "Even in the event of IMF compliance, we
remain concerned over the adequacy of the current IMF package,
especially in light of the country's continued financial
deterioration."

Of even greater concern, Starkey said, was the weakening
confidence in the current political leadership, the emerging
prospect of increased social unrest -- triggered by mounting
unemployment -- and lingering uncertainty over how the future
political transition would unfold.

Meanwhile, Standard & Poor's Corp said from Tokyo yesterday it
may further cut its ratings for the sovereign debt of Indonesia,
South Korea, Malaysia and Thailand in 1998.

"Further downward rating actions may occur in Indonesia,
Korea, Malaysia and Thailand," S&P president Leo O'Neill was
quoted by Reuters as saying.

The Asian turmoil may also have an impact on the credit
standing of governments outside the region "if the crisis deepens
and adversely affects economies elsewhere," the statement quoted
O'Neill as saying in his annual "State of the Global Credit
Markets" report.

O'Neill also said the credit outlook for most Asian financial
institutions was negative, while the outlook for most North
American and Western European financial institutions was stable.
(rid)