IBCA rates RI's long-term foreign currency BBB minus

IBCA rates RI's long-term foreign currency BBB minus

LONDON (Reuter): IBCA, the European credit rating agency,
yesterday assigned a long-term foreign currency rating of BBB-
(BBB minus) to all senior, unsecured debt issues of the Republic
of Indonesia.

This investment grade rating applies to over US$50 billion of
public and publicly guaranteed foreign currency debt and will set
a ceiling for IBCA rated banks and corporates in Indonesia. A
short-term foreign currency rating of A3 will apply to issues of
up to one year.

IBCA also issued a long-term local currency rating of A in
recognition of the Republic's strong fiscal position and low
inflation.

The agency says Indonesia has an outstanding record of
economic development: real gross domestic product (GDP) growth
has averaged 7 percent per annum over the last 25 years, putting
it among the High Performing Asian Economies.

Per capita GDP has risen over ten-fold from less than $100 in
1970 to $1,132 in 1996, elevating the country to lower middle
income status, while absolute levels of poverty have fallen from
70 percent of the population in 1970 to 15 percent at present.

Steadfast adherence to sound macro-economic policy management,
complemented by structural adjustment has been the key to this
success.

In contrast to many other emerging market countries in its
peer group, Indonesia has consistently demonstrated a readiness
to adjust economic policy in response to external shocks: these
have included the collapse in world oil prices in the mid-1980s,
economic overheating induced by the sharp rise in oil prices in
1990-91, and the fall-out from the Mexico peso crisis in 1994-95.

Measures to wean the economy off its dependence on oil and gas
and promote the development of the private sector have stimulated
significant inflows of foreign investment.

However, IBCA points out that political risk and the size of
the country's external debt act as major constraints on the
rating.

President Soeharto's New Order government has provided thirty
years of political stability but a major question mark hangs over
his successor. Three decades of economic prosperity have given
all Indonesians a large stake in a smooth transition of power but
it is still unclear when and how this transition will take place
and to whom the mantle will pass.

Although the continuity of economic policy does not appear to
be under threat, this lack of transparency is a growing source of
uncertainty. So, too, are persistent outbreaks of social unrest
which may be symptomatic of deeper undercurrents in Indonesian
society.

Indonesia has established a record of sound external debt
management, unblemished by any payment interruptions. This is no
small achievement given the size of the debt -- in excess of $100
billion -- and the stress tests that Indonesia has endured over
the past thirty years. The unwavering commitment of aid donors in
the guise of the Consultative Group for Indonesia has been an
important support factor.

Nonetheless, as the fourth largest debtor in the developing
world, Indonesia has the highest net external debt ratio of any
country in the BBB category. Moreover, a significant component of
this debt is short-term. With a growing share of external debt
being contracted on commercial terms, the need to sustain
investment and non-oil export growth will remain of paramount
importance.