Govt debt rating target difficult: Analysts
JAKARTA (JP): The new economic team's plan to upgrade the country's credit rating from CCC+ to BB within six months may prove to be a difficult task, with a gaping state budget deficit crippling the country's ability to repay debts, analysts said on Wednesday.
Citibank vice president, economist Anton Gunawan, said that ongoing concerns over budget sustainability made a drastic rating improvement difficult to achieve.
"The government must seek ways to improve its cash flow," Anton told The Jakarta Post.
He said a better cash flow would show investors Indonesia's improved ability to repay both local and foreign debts.
On Tuesday, Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti said he would seek to upgrade Indonesia's rating to increase the flow of foreign investment and lower the cost of borrowing funds from overseas.
Investment has been hampered in Indonesia, with ratings agency Standard & Poor's classifying Indonesia's long term foreign currency rating as CCC+.
At CCC+, Indonesia is designated as a non-investment country, meaning bond issuers here are vulnerable to payment defaults due to adverse business conditions.
Consequently, investors charge a high interest spread on Indonesian bonds to cover its country risk.
Anton said Indonesia's state budget best reflected the government's risk and payment abilities.
Right now, the government faces payment difficulties due to higher expenditure and missed revenue targets during the first semester, he said.
In that period, a weaker than expected rupiah and soaring interest rate led to doubts as to whether the 2001 budget deficit of 3.7 percent could be achieved.
Political instability affecting market sentiment has also stalled the government's asset sale and privatization programs.
Divesting government stakes and selling off state assets is expected to help plug the deficit margin.
"Thus far, our privatization proceeds amount to zero," Anton said, referring to the government's plan to reap in Rp 6.5 trillion (about US$773.80 million) through its massive selloff.
With the return of political stability, however, most analysts expect an economic turnaround in the second half.
Analyst Wi Wan at PT Vickers Ballas Tamara warned that an upgrade from CCC+ to BB was too ambitious for the government to achieve within six months.
"Even under normal circumstances the jump to a BB rating sounds difficult to achieve," he added.
He said Indonesia must pass four levels; the first one from CCC+ to B-, then B+, BB- and finally BB+.
"Also, ratings usually go down faster than they go up," Wi Wan added.
Erwin S. Widjojo of Mega Capital Indonesia, formerly known as Indovest Securities, said hopes for an improved rating depended on Indonesia mending ties with its donor countries.
With the International Monetary Fund (IMF) almost certain to approve a lending agreement with Indonesia, he said, the government was likely to earn a rating upgrade.
A deal with the IMF would pave the way for the Paris Club group of creditors to approve the rescheduling of $2.8 billion in sovereign debts.
That should relieve the pressure of paying the debts this year.
On the back of these deals, the government seeks to secure new loans from the Consultative Group for Indonesia (CGI).
Erwin said the CGI loans would help the 2002 state budget, thus further enhancing Indonesia's payment capability.
He added that Indonesia's abundant natural resources also remained an effective support for its credit rating.
"Investors rely on Indonesia's natural resources to pay back its debts," he said.
However, he said, Standard & Poor's rating also depended on whether current political stability would prevail.(bkm)