RI's ratings still hinge on debt talks
RI's ratings still hinge on debt talks
Jennifer Chen, Reuters, Singapore
Ratings agency Standard & Poor's said on Tuesday Indonesia's
long-term sovereign ratings are still at risk of a downgrade to
"selective default" despite recent positive economic and
political developments.
Indonesia's ratings hinge on whether Paris Club creditors will
demand equal treatment for private lenders in rescheduling the
country's huge debt burden at crucial talks next month, Takahira
Ogawa, director of sovereign ratings at S&P in Singapore, told
Reuters.
The agency has said previously that it would downgrade
Indonesia to selective default if the Paris Club insisted that
private lenders shoulder some of the burden of rescheduling.
A downgrade to selective default would make it more difficult
for the country to attract foreign capital and would force up the
cost of borrowing.
S&P cut Indonesia's long-term sovereign debt rating to CCC
from CCC-Plus in November, citing the same concerns about private
lenders being asked to share the burden of restructuring.
Boediono has been lobbying foreign creditors over the need for
Indonesia to reschedule around US$5.5 billion in debt, part of
the country's total $140 billion in foreign obligations.
The Paris Club is due to meet next month with Jakarta to
discuss rescheduling of interest and principal payments due in
2002 and 2003.
The market has been debating whether private lenders will be
asked to share the pain of restructuring. Commercial loans, such
as $500 million in yankee bonds due in 2006, make up a sizable
portion of the country's formidable debt burden.
Separately, Jakarta is seen trying to tackle endemic
corruption with two high-profile cases. The parliamentary speaker
and leader of the former ruling Golkar Party Akbar Tandjung is on
trial for graft and former president Soeharto's favorite son,
Hutomo "Tommy" Mandala Putra is charged with murdering a judge
who convicted him for corruption.
Ogawa also noted a dispute between the central bank and
finance ministry over the servicing of 144.5 trillion rupiah
($14.9 billion) in government bonds, which could have a serious
impact on budget deficit figures for 2001 and beyond.
The bonds were issued by the government to repay the central
bank for loans made to debt-laden private bankers in the 1990s.
But the government is worried it will not be able to get
repayment from the bankers and has refused to pay Rp 7.8 trillion
in interest on bonds due in 2001 until the central bank can
verify that the banker loans were properly made.
The dispute has raised concerns among analysts that the burden
could be placed on the central bank, and jeopardize its financial
position and its yankee bonds.
S&P's Ogawa said this was another unfortunate example of the
government's confused way of dealing with the economy.
"It is not quite clear to me who is in charge of economic
policy," he said.
Ogawa said the sale of Bank Central Asia (BCA) -- the
country's largest retail bank -- to U.S. investment firm Farallon
was a step in the right direction for Indonesia.
Nevertheless, he had reservations over the sale process and
whether future assets sales would be successful.
"The distance of this step might not be big. It's not a great
leap forward because the process is still unclear and there are a
lot of questions that remain," said Ogawa.
Farallon won the bid for 51 percent of BCA earlier this month,
surprising many in the market who had expected long-running
favorite Standard Chartered Bank to win.
Jakarta has said it awarded Farallon the deal because it had
fewer conditions than StanChart, though market talk still
persists as to whether a hedge fund can successfully run a bank.