RI's credit rating faces challenges: U.S. agency

RI's credit rating faces challenges: U.S. agency

NEW YORK (AFP): The U.S. agency Standard and Poor's on Thursday warned that Indonesia's credit rating depended on how effectively its new leaders restore order, complete corruption probes and deal with the army.

Standard and Poor's, in an assessment following the election of Indonesian President Abdurrahman Wahid and Vice President Megawati Soekarnoputri, said the new team faces "multiple political and economic pressures."

The agency noted that the triple-C-plus long-term foreign currency credit and unsecured debt ratings it has assigned to Indonesia suggest "a high risk of default" on the country's US$2.3 billion foreign currency commercial debt.

It said the first priority for the new administration was the restoration of law and order following protests by Megawati supporters following her surprise defeat in Wednesday's presidential ballot in the Consultative Assembly.

Other tests for the new team will be to ensure that corruption investigations do not delay economic policy measures and to "maintain cordial relations with the army, which remains a major force in Indonesian politics."

Standard and Poor's called for continued commitment by the government to central bank independence and to low inflation as well as the resolution of a scandal at Bank Bali.

Principal payments on the country's general government debt, which now amounts to 110 percent of gross domestic product, are set to increase from about $2 billion in 1999 to $5 billion next year and $9 billion in 2001-2002.

Standard and Poor's predicted that another round of debt restructuring by Indonesia's official creditors in the Paris Club would be necessary to support expansionary budgets in 2000 and 2001.

But the agency did not rule out the possibility that Jakarta might go further and seek both debt reduction and rescheduling.

"Over the long term ... a substantial reduction in Indonesia's external debt burden is likely to be necessary to support economic recovery and to rebuild the (government's) credit rating," it said.