Indonesia downgraded, Thailand may be next

Indonesia downgraded, Thailand may be next

LONDON (Reuters): Indonesia's long-term foreign currency
rating was cut two notches yesterday, and Thailand appeared next
in line as the Asian financial crisis deepened.

International agency Fitch IBCA said Indonesia's downgrade to
BB minus from BB plus reflected uncertainty after this week's
1998/99 budget proposals which had failed to maintain the
confidence needed to roll over the high level of external debt.

"The tabling of unrealistic budget proposals which publicly
flout recently agreed targets with the International Monetary
Fund is a severe blow to confidence," Fitch IBCA said.

Indonesia's planned balanced budget for 1998/99 fell short of
recommendations from the IMF last year for a budget surplus of
one percent of gross domestic product.

The rating news came at the end of a frantic day of plummeting
asset prices in Indonesia, the developing world's fourth largest
debtor, amid fears of a debt moratorium.

Both the stock market and the currency plunged more than 18
percent at one point, with the rupiah quoted at 10,000 to the
dollar in late trade.

There was talk that long-time leader President Soeharto, 76,
might not stand for reflection in March and witnesses reported
panic buying of food and other essentials.

Fitch IBCA said political as well as economic stresses were
rising within Indonesia, since Soeharto's government had drawn
much of its legitimacy from economic success.

"This may increasingly complicate the succession to the ageing
president," it said.

A further factor in the downgrade was the fact that
Indonesia's export earnings would be hit by recent oil price
falls, since it is a major oil exporter.

The sharp fall in the rupiah this month has placed mounting
strain on Indonesian companies who have to find more rupiahs each
day to service their dollar debts, in turn hurting the banks.

"This may complicate the task of rolling over short term
credit lines to Indonesia," Fitch IBCA said.

It estimated the country's gross external debts at close to
$120 billion, equivalent to almost 200 percent of foreign
exchange receipts.

But Thailand was putting a brave face on its expected rating
cut, saying it would only be a small one-notch cut that would
keep it above junk bond grade.

International rating agency Standard and Poor's will
downgrade Thailand's sovereign rating to "BBB minus" or one notch
above junk bonds, Finance Minister Tarrin Nimmanahaeminda said
yesterday.

In an unprecedented move, Tarrin called a press conference to
announce the long-term foreign exchange ceiling downgrade a day
before the agency itself was due to release its report.

Analysts said the move was possibly an attempt to limit the
impact on the sharemarket which closed shortly before the
announcement.

In December, Moodys Investors' Services downgraded Thailand's
foreign currency ceiling for bonds to the equivalent of junk bond
status, along with Indonesia, Malaysia and South Korea.

Standard and Poor's expected downgrade from "BBB" to "BBB
minus" follows discussions between Tarrin and ratings chiefs last
month, at which Tarrin asked for a fair assessment of Thailand's
economic fundamentals.

Thai government officials criticized Moody's for being too
severe and jeopardizing the country's recovery plans under the
International Monetary Fund's tough austerity measures.

The government was forced to put a moratorium on all new bond
issues following the Moody's review, as most fund managers are
prevented by law from buying junk bonds which are below
investment grade.