Indonesia's rating outlook remains stable despite doubts
Indonesia's rating outlook remains stable despite doubts
JAKARTA (JP): The United States-based rating agency Moody's maintained its B3 foreign currency country ceiling for Indonesian bonds and notes, despite the country's uncertain financial position.
Moody's said on Wednesday that the rating was compatible with the current volatility in the country's political situation and economy, adding that Indonesia's outlook remained stable.
"It is significant, however, that the bank deposit ceiling is at Caa1, indicating that transactions with banks in Indonesia pose very significant risk. Thus, London Club reschedulings, such as occurred last year, are fully anticipated by the ratings," the rating agency said in a statement.
Moody's believes, also, that there is some risk that the Indonesian government will impose a moratorium or a new payment regime for Indonesian corporations that have foreign debt. Thus, all ratings of Indonesian-based corporations are below the B3 country ceiling.
"In effect, the B3 foreign currency country ceiling is based on the expectation that the government of Indonesia will continue to service its single remaining sovereign bond. That bond is due in 2006, and the interest cost is so small that under almost any scenario it is serviceable," it added.
Moody's also saw the possibility that the Indonesian government's attitude toward foreign creditors might turn negative, or that there would be a general moratorium.
Under the most likely scenarios envisioned by the rating agency, however, the sovereign bond will continue to be serviced. However, since there are a number of factors that could negatively affect timely repayment, a B3 rating appears to best capture the credit risks involved, Moody's said.
According to the rating agency, the political and social turmoil in Indonesia, including but not limited to events surrounding the presidency, has seriously eroded the government's ability to implement economic policy.
The vote of the House of Representatives on May 31 calling for a special session of the People's Consultative Assembly beginning on Aug. 1 to consider removing the President indicates the turmoil will likely continue for at least the next few months, it said.
Moody's said some of the effects of this situation include: a serious fiscal imbalance brought about by higher subsidies; lack of progress in disposing of assets held by the Indonesian Bank Restructuring Agency; rising inflation due to exchange rate depreciation, which results from lack of confidence on the part of Indonesians and foreigners; continued problems with corporate sector external debt; and lack of access to credit from foreign official (let alone private) creditors. All of these factors affect Indonesia's creditworthiness.(hen)