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.