S&P lowers Indonesian currency ratings

S&P lowers Indonesian currency ratings

HONG KONG (AFP): U.S. ratings agency Standard and Poor's
yesterday downgraded its Indonesia long-term foreign currency
rating to B from BB, and its local currency rating to BB- from
BBB.

Standard and Poor's downgrades Indonesia currency ratings, as
the country announced reforms and sought to stall corporate debt
repayments.

The agency cut its long-term foreign currency rating to B from
BB, and its local currency rating to BB- from BBB, it said. Both
ratings are still on creditwatch with negative implications.

"The downgrades are based on Indonesia's deepening financial
crisis and diminished external payments flexibility as evidenced
by the government's suspension of foreign currency debt servicing
by troubled corporates," it said in a statement.

The agency also pointed the finger at President Soeharto,
saying his credibility was crumbling and that a clear plan for
the transfer of power after his rule was vital.

Earlier Tuesday Indonesia brought in sweeping banking reforms
in an effort to restore confidence in its shattered economy.
It called for a "temporary pause" in repayments of billions of
dollars in corporate debt.

But Standard and Poor's warned of further ratings downgrades.

"Another imminent downgrade could occur following a review of
the official initiative to restructure the corporate sector's
foreign currency obligations, including potential costs to the
government," it added.

Further moves also depended on clarification of the Indonesian
government's policy toward public sector debt servicing, it said.

The agency highlighted "growing risks to political stability
as the credibility of the current political leadership erodes and
near-team economic prospects worsen."

Inflation was likely to surge and output shrink, bringing
economic hardship and with it social and ethnic tension. It
predicted the economy would contract by more than 5 percent in
1998 and by the end of the year some 40 percent of all loans
would have turned bad.

Standard and Poor's also downgraded its ratings on the state-
owned general insurer PT Asuransi Jasa Indonesia (Jasindo),
blaming falls in the value of its assets, exposure to
infrastructure transactions and lack of government support.

The firm's local currency claims-paying ability rating and
issuer credit rating were cut to BB- from BBB-. Both remain on
creditwatch with negative implications.