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.