Ratings agencies says RI's future still uncertain
Ratings agencies says RI's future still uncertain
NEW YORK (Dow Jones): The peaceful ascension of Megawati Soekarnoputri to the Indonesian presidency alone isn't enough to help the country's near-term outlook, according to two major ratings agencies.
Indonesian lawmakers voted overwhelmingly Monday to replace President Abdurrahman Wahid with political rival Megawati, who had served as vice president for nearly two years. When the disgraced Abdurrahman refused to quit his job and leave the presidential palace, he got little support from the military and the courts. The national assembly had been attempting to impeach him for months for alleged corruption and incompetence.
"The fact that President Abdurrahman has been replaced without large scale social unrest is a positive," said Ashok Bhatia, the primary analyst for Indonesia at Standard & Poor's Corp.
But Bhatia added that the recent developments hadn't come as a surprise, and that lingering uncertainty could continue to constrain Indonesia's long-term foreign currency ratings of triple-C plus with a negative outlook, a mere two notches above a default rating.
"We feel that even in a best-case scenario Indonesia is unlikely to be able to manage without further Paris Club reschedulings," Bhatia said in reference to the umbrella group of sovereign creditors.
Abdurrahman has left a daunting mess for Megawati to clean up. Last spring the International Monetary Fund canceled around $400 million of funding to the country, saying Indonesia failed to honor commitments made earlier in return for the money. The IMF has made a string of demands, including a privatization program and reassurance that the central bank will remain autonomous.
"Megawati needs to come out with a strong statement affirming the independence of the central bank, without delay," Bhatia said.
A couple of weeks ago an IMF mission indicated that it had finally reached agreement with the Indonesian government, which has said IMF disbursements could finally restart in August.
"I think (the IMF) will wait and see if the new government can perform" before taking action, said Steven Hess, lead analyst for Indonesia at Moody's Investors Service. "They've already had the experience of being disappointed."
Megawati, the daughter of founding president Sukarno, is Indonesia's fourth president in little more than three years.
Indonesia's ratings, which are currently two notches above Moody's lowest rung at B3 with a stable outlook, aren't likely to change in the upward direction any time soon, Hess said.
"If the new government can regain the confidence of the populace at large, this could be a turning point," he said. "But the problems they have to cope with are so large, it's hard to tell right now whether they'll be effective."
Megawati has offered few details about how she plans to turn around Indonesia's struggling economy.