RI's bank reform delay prolongs distress: Thomson
RI's bank reform delay prolongs distress: Thomson
HONG KONG (Dow Jones): Thomson BankWatch said Friday that
Indonesia's sovereign risk rating stands at CCC and that the
outlook for the country is stable.
The government last week postponed the deadline for closing
about 40 distressed banks saying it needed more time to evaluate
individual bank recovery plans.
Thomson sovereign risk analyst, Anand Adiga, said "whatever
the reason for the delay, it only prolongs the distress in the
banking sector and does nothing to dispel the fears of political
interference in banking sector reform."
The delay in closing the banks also makes it difficult for
several banks to proceed with capital-raising exercises, such as
rights issues, Thomson said.
"This ongoing uncertainty is making it difficult for banks to
proceed with needed capital-raising exercises, and previously
announced rights issues by several banks have all been postponed
in recent days until the government makes its final decisions,"
Adiga said.
Multilateral funding agencies have opposed the delay in
closing banks and the International Monetary Fund has warned it
might delay the next tranche of its US$43 billion bailout
package, Thomson said.
The country needs about Rp 300 trillion (US$33.7 billion) to
recapitalize its banks, and given the weak economy and the
nation's political problems, the government is not likely to be
able to supply all the money needed.
Since most foreign investors are likely to remain cautious
until at least the June 7 elections, the country will continue to
be heavily dependent on official assistance from both
multilateral and bilateral donors.
The IMF has indicated that it might consider increasing its
current bailout package; the World Bank and the Asian Development
Bank are also pondering guaranteeing Indonesian sovereign debt
issues, which would significantly lower the interest premium the
government would have to pay.
On the corporate debt restructuring side, recent rulings by
commercial courts have gone in favor of debtors, which could
diminish the incentive for distressed corporates to restructure
their obligations.
In addition, political tension is rising, with religious and
political riots in several districts.