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.