BI to ask S&P over downgraded rating
BI to ask S&P over downgraded rating
WASHINGTON (Dow Jones): Bank Indonesia Governor Sjahril
Sabirin said Monday that he will ask Standard & Poor's to explain
why certain of the country's foreign-currency credit ratings were
downgraded earlier to selective default.
"We will have to ask Standard & Poor's what is really behind
this," he told Dow Jones Newswires in an interview.
Then "we can pass good information to them so that we hope
they can revise this tomorrow," he added.
Earlier, S&P said it downgraded its long-term foreign currency
issuer credit rating on Indonesia to SD, or selective default,
from triple-C-plus and cut its short-term foreign currency issuer
credit rating on the republic to SD from single-C.
"The downgrades reflect the fact that Indonesia is now
effectively in default on $850 million of foreign currency
commercial bank loans," the rating agency said.
"The loans ... will be restructured on terms that are
disadvantageous to creditors, reflecting Indonesia's commitment
to seek similar magnitudes of debt relief from private lenders as
that secured from the Paris Club of 19 bilateral creditor
governments on April 13, 2000."
S&P also said it affirmed Indonesia's long-term and short-term
local currency issuer credit and senior unsecured debt ratings at
single-B-minus and single-C, respectively. Local currency bank-
recapitalization bonds, with a face value of about $42 billion
are affected.
The outlook on the long-term local currency issuer credit
rating is stable. All ratings have been removed from CreditWatch
with negative implications, where they were placed on Sept. 13.
Bank Indonesia Deputy Governor Achjar Iljas, who also attended
the interview, said he too was surprised by the downgrade but
said it most likely related to the Paris Club debt rescheduling.
"The result of the Paris Club itself should have a positive
effect" at least on perceptions of the country's exchange rate,
he said.
On the rupiah overall, the central bankers said the currency's
exchange rate against the dollar should be higher.
"The fundamentals in our view would say that the exchange rate
should be stronger than what it is right now," Sjarhil said.
"According to our estimation, the realistic exchange rate should
be a little bit stronger than Rp 7,000."
Indonesia's economy has recovered over the past quarter with
growth picking up in most sectors, the central bank governor
said.
"We have done surveys of the real (economy's) sectors," he
said. "Growth in production occurred almost in all sectors except
agriculture" in the first quarter, a trend that began in late
1999.
But despite stronger growth, there aren't yet signs of much
higher inflation because a large portion of the economy's output
capacity lies idle.
The central bank has set an inflation target of between 5 and
7 percent for 2000.
"We still think that figure is realistic," Sjahril said.
Although "it is more likely that it will be closer to the upper
end of that range."
Excluding the effects of increases in government-set prices,
underlying inflation is targeted at between 3 and 5 percent in
2000, they said.
The two central bankers also said that they weren't overly
concerned about the effect of falls in U.S. share prices on
Indonesian share prices.
Achjar said that in the past, U.S. share price falls have been
more keenly felt in other Asian countries rather than in
Indonesia.
Sjahril also said that the fall in U.S. share prices may not
continue and would therefore be a correction after recent strong
rises.
But more worrying, they said, is the effect of falling U.S.
share prices on global growth in the medium term.
"What we are concerned with is the prospect for economic
growth in the United States because that would imply (lower)
demand for our products," Sjahril said.
Lower U.S. and overall world economic growth wouldn't be a
significant problem in the short term because domestic demand in
Indonesia is picking up. But in the medium term, weaker world
economic growth would be a concern, he said.