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.