Fitch reaffirms RI's long-term forex rating at B-minus

Fitch reaffirms RI's long-term forex rating at B-minus

JAKARTA (Dow Jones): Ratings agency Fitch IBCA Ltd. said Thursday it had affirmed Indonesia's long-term foreign currency rating at single-B-minus with a stable outlook.

The foreign currency rating applies to all senior, unsecured sovereign foreign currency debt issues and sets a ceiling for all other Fitch rated entities in Indonesia.

Fitch also affirmed the short-term foreign currency rating of single-B, applicable to issues with a maturity of up to one year.

However, concerns over public finances led the agency to downgrade the long-term local currency rating for domestic sovereign debt issues to single-B-minus from single-B-plus.

Despite its paucity of rated sovereign external debt - currently under US$500 million - Indonesia continues to warrant a long-term foreign currency rating of single-B-minus because of its fragile balance of payments, weak external liquidity position and medium-term debt service concerns, Fitch said.

However, the sharp rise in oil prices is expected to deliver record trade and current account surpluses this year. In addition, Paris and London Club debt reschedulings have given the country breathing room until 2002.

Fitch said these factors, coupled with Indonesia's commitment to an International Monetary Fund (IMF) program weighted towards structural reforms, warrant a stable outlook.

Fitch said budget deficits have been surprisingly modest, given the severity of the crisis. However, the collapse of the rupiah and high cost of recapitalizing the banking system have driven up national debt.

With debt service now absorbing one-third of government revenue, public debt sustainability has become an issue, particularly due to large contingent liabilities and the uncertainty over plans for fiscal decentralization in 2001.

These factors highlighted the agency's decision to downgrade the long-term local currency rating. Asset recovery and privatization will be key to containing public debt at manageable levels, the agency said.

Economic recovery has been underway since the fourth quarter of 1999. Analysts said sustainable economic recovery depends on the restoration of a sound banking system, the resolution of the corporate debt overhang, rooting out of corruption and reform of the legal system.