RI rating faces threat

RI rating faces threat

HONOLULU (Reuters): Indonesia's sovereign credit rating, already the lowest among rated Asian borrowers, could be further undermined if the government does not succeed in reigning in its budget deficit, the head of Standard & Poor's sovereign ratings group said on Wednesday.

Indonesia's government has set a deficit target of 3.7 percent of gross domestic product, but a decline in the value of the rupiah and high domestic interest rates have sent the projected deficit towards 6 percent.

Unless the government takes steps in agreement with its official creditors, to reduce the margin of that overshoot, the country's 'B-minus' long-term rating could be affected, John Chambers, an S&P managing director told reporters on the sidelines of the Asian Development Bank meeting here.

A deficit of near 5-6 percent of GDP, "would be quite difficult to reconcile with the rating at the present level," said Chambers.

Indonesia also needs to take steps to speed the write-off of bad loans through the Indonesian Bank Restructuring Agency (IBRA), affirm the independence of the central bank and establish an active rupiah-denominated Treasury bill market, he said.

S&P currently has Indonesia's sovereign rating on negative review for possible downgrade.

The International Monetary Fund has delayed the disbursement of a US$400 million credit to Indonesia, citing lagging economic reforms.

Indonesia has been in arrears with its bilateral creditors since early April, Chambers said, a situation that could begin to affect its borrowing from private investors, including a Eurobond and syndicated debt.

Indonesia was rated as high as 'BBB,' the bottom rung of investment grade, before the Asian currency crisis of 1997.