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)