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.