Indonesia's credit rating outlook may be reviewed: S&P
Indonesia's credit rating outlook may be reviewed: S&P
Linus Chua and David Yong, Bloomberg, Singapore/Kuala Lumpur
The"positive" outlook on Indonesia's credit rating may be reviewed by Standard & Poor's following the "sharp" decline in the nation's currency, the credit rating company said.
The rupiah is set for its biggest monthly slide since October 2001 on concern record oil prices will force the government to pay more for fuel subsidies. S&P said it has factored in Indonesia's fuel subsidy in the country's B+ rating, which is four levels below investment grade.
Indonesian President Susilo Bambang Yudhoyono may on Wednesday announce cuts to the subsidies as part of a plan to support the rupiah, which yesterday halted an eight-day slide that pushed the currency to a four-year low of 11,800. S&P said Indonesia needs to address its fuel subsidy amid rising oil prices.
"The increased pressure placed on the economy by higher oil prices and the weaker rupiah may cause Standard & Poor's to review the positive rating outlook on the Indonesian government, if the underlying causes are not promptly addressed by a credible set of policy measures," Agost Benard, a credit analyst at S&P, said in a statement today. The rupiah's decline "underscores the urgency of addressing the fuel subsidy issue."
The credit rating company also said that Indonesia's economy is structurally more robust compared with the 1997-1998 Asian financial crisis, adding that it expects "improvement" in the economy in the "medium term." Still, it said the banking industry faces risks from the falling currency.
Government fuel subsidies may balloon 90 percent to Rp 145 trillion (US$14 billion) this year because of soaring international prices, Yudhoyono said Aug. 16. Crude oil for October delivery today rose as much as 1.2 percent to $70.63 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $70.54 at 8:33 a.m. London time. Yesterday, it reached $70.85, the highest since the contract started trading in 1983.
Moody's Investors Service however said it may not change the nation's credit ratings and outlook because the budget deficit is manageable and economic growth is still reasonable.
Indonesia's B2 rating, which is five levels below investment grade, "can stand some volatility," Steven Hess, a New York- based analyst for the rating company, said in an e-mailed reply to Bloomberg today.
A major drop in its international reserves may be the trigger for a review of the nation's rating outlook, Hess said.
The ratio of government debt to GDP has dropped quite steeply since it peaked at about 100 percent in 2000, Hess said. Moody's had a forecast for the end of this year of a ratio of about 56 percent, he said. As a result of the rupiah's decline, the ratio of government debt to gross domestic product may be a couple of percentage points higher, he said.
Even if the budget deficit is double the government's revised target of 1 percent of GDP, it is still compatible with a decline in the debt ratio, Hess said.