S&P downgrades Indonesia's ratings

S&P downgrades Indonesia's ratings

HONG KONG (Reuters): Standard and Poor's Corp said yesterday that it had downgraded Indonesia's ratings and that it may cut ratings further.

S&P said it cut Indonesia's long-term foreign currency rating to BB from BB-plus. It cut Indonesia's long-term local currency rating to BBB from BBB-plus.

The rating agency said that Indonesia remained on creditwatch with negative implications.

S&P said the downgrades and CreditWatch placement reflect the following:

* Mixed signals from the Soeharto government regarding its commitment to the economic reforms that are essential to stabilizing the crisis of confidence and containing the recent acceleration of capital (including depositor) outflows. The 1998- 99 budget proposal highlights the difficulty of maintaining fiscal restraint as political and social tensions intensify in the run-up to the presidential elections in March 1998.

* The deepening financial crisis that is crippling Indonesia's corporate and banking sectors. Despite today's recovery, the substantial depreciation of the rupiah in recent weeks has intensified already severe pressures on the private sector to a degree that threatens widespread bankruptcies and a surge in unemployment. The government will be challenged to implement financial sector and other structural reforms in a deteriorating financial and economic environment.

S&P said the creditwatch status will be resolved over the next few months following a review of the following:

* The government's policy response now and in the next administration to the deterioration in foreign and domestic investor sentiment;

* The political leadership's commitment to implement reforms, including the closure of additional insolvent financial institutions and the curtailment of uneconomic public works and distortive state monopolies; and

The degree to which Indonesia's existing and potential external financing requirements will be met by official creditors' support, Standard & Poor's said.