S&P cuts Indonesia credit ratings

S&P cuts Indonesia credit ratings

NEW YORK (Reuters): Standard & Poor's yesterday lowered its
rating on the Republic of Indonesia's US$400 million Yankee bond
due 2006 to triple-'C'-plus from single-'B'-minus.

Additionally, Standard & Poor's lowered its long-term foreign
currency credit rating on the Republic to triple-'C'-plus from
single-'B'-minus and its long-term local currency credit rating
to single-'B'-minus from single-'B'-plus.

The ratings remain on CreditWatch with negative implications,
where they were placed on Jan. 9, 1998.

The downgrades reflect Indonesia's deepening political crisis,
which in turn is further eroding its ability to service public
sector obligations. Uncertainties related to the possibility that
President Soeharto will leave office, triggered by violent social
unrest, have overshadowed earlier progress towards macroeconomic
stabilization.

As a result, both the government's policy targets and
external financial support linked to the IMF program once again
are in jeopardy.

The cut in the local currency rating also reflects
intensifying inflationary pressures, as well as the risk of
prolonged disruptions in the rupiah payments system managed by
the central bank.

The ratings remain on CreditWatch given the increased
likelihood of a change of administration near term and lack of
clarity on how such a transition might play out. Even if a
relatively smooth regime change does occur, political
uncertainties could linger, hampering both the effectiveness of a
new government's policies and prospects for an early economic
recovery.

And an impasse between the Soeharto government and its
opponents, if prolonged, likely would result in greater economic
and financial stress, Standard & Poor's said.