Fitch downgrades RI sovereign rating
Fitch downgrades RI sovereign rating
Hong Kong , Dow Jones
International ratings agency Fitch said Friday it has
downgraded its outlook for Indonesia's sovereign ratings to
stable from positive.
It cited growing concerns about authorities' intentions to
explore interest rescheduling with the Paris Club of creditors.
Fitch said it was concerned about the potential burden-sharing
implications for private creditors of such a move.
Fitch said its sovereign ratings of B- for both long-term
foreign currency and long-term local currency remain unchanged.
It also maintained its short-term foreign currency rating of B,
applicable to issues with an original maturity of up to one year.
The Paris Club is an informal group of government
representatives who meet irregularly in the French capital to
consider debt rescheduling for debtor nations.
Fitch said a B- foreign currency rating remains appropriate
for Indonesia because of the small amount of sovereign capital
market debt outstanding and the low probability of this becoming
caught up in a Paris Club rescheduling.
"However, recent indications that the Indonesian authorities
might seek to reschedule interest as well as principal falling
due at the next round of Paris Club negotiations represents a
clear break with the past," it said.
"Such a strategy would raise the probability of coupon
payments on a Yankee sovereign bond falling due in 2006 being
subjected to comparable treatment."
Fitch noted the government is aware of the risks of seeking
interest rescheduling, and is expected to argue against including
the Yankee in any such burden sharing arrangement.
"Nonetheless, the nominal value of the Yankee is much larger,
as are the coupon payments, and the risks of contagion are
accordingly that much greater," it said. "Fitch cautions that
were these risks to materialize, a more severe rating action
would likely ensue."
Fitch also said its change in outlook reflects its
disappointment with the first 100 days or so of President
Megawati Soekarnoputri's administration.
"Weaker investor sentiment has led to a renewed slide in the
currency that has a direct effect on the budget, while the
deteriorating outlook for the U.S. and Japan will hit Indonesia's
exports hard in 4Q 2001," it said in a statement.
"In contrast to much of the surrounding region, high public
debt limits the government's ability pump prime the economy,
while relatively high inflation militates against looser monetary
policy."
Fitch said Indonesia is seeking an extension of its current
arrangements with the International Monetary Fund by one year to
2003 and a new accord should be announced within the next few
weeks.
"A new IMF program will be an essential prerequisite to any
further rounds of Paris Club negotiations," it said.