S&P may downgrade RI
S&P may downgrade RI
Ovais Subhani, Reuters, Singapore
Standard and Poor's said on Monday it will "most probably" downgrade Indonesia to selective default after the Paris Club of creditor nations struck a deal that may force private investors to share the pain of a debt restructuring.
A downgrade may raise borrowing costs for Indonesia if it makes investors more wary of investing in the debt-ridden Southeast Asian state.
Takahira Ogawa, director of sovereign ratings for the Asia Pacific region, said S&P was seeking details from Jakarta and the Paris Club about Friday's rescheduling deal to assess its impact on other private loans including an estimated $350 million of syndicated loans.
"Unfortunately we'll most probably have to downgrade Indonesia's sovereign rating to selective default because of the comparability application on the debt from the private sector," he said.
Indonesia on Friday secured rescheduling of $5.4 billion of principal and interest payments it owed to its bilateral creditors between April 1, 2002 and December 31, 2003.
S&P uses a selective default rating when an issuer changes the terms and conditions relating to the principal or interest payments on some loans while staying current on others.
TEMPORARY SETBACK
But it may only be a temporary setback and the stigma of "selective default" may have been diluted given several countries' experience in recent years.
S&P may quickly revise up an issuer when the new terms and conditions are agreed. Pakistan was downgraded to selective default after a 1999 restructuring of its debt but it was subsequently upgraded as the revised terms and conditions were seen as improving its capability to pay.
A Paris Club statement, issued after two days of talks in Paris with Indonesian negotiators, said Indonesia had agreed to seek comparable treatment from private creditors but made clear the club would not insist on absolute equality for all lenders.
The statement said the Club agreed to exclude maturities falling due under the interbank exchange offers and a $400 million Yankee bond due 2006. A Yankee bond is a U.S. dollar- denominated bond sold by a foreign company or country.
"So the syndicated loans amounting about $350 million will be the subject of the comparability application," said Ogawa.
He said the syndicated loans falling due between April 2002 and December 2003 were arranged by a major Japanese bank and most of the loan participants were also Japanese institutions.
Ogawa said Indonesia was also likely to receive a ratings upgrade when it started paying under the new terms and schedule.
Friday's debt rework deal was Jakarta's third since Indonesia, the world's most populous Muslim country, was hit by the Asian economic crisis in the late 1990s and was the first to cover interest as well as principal on some of its $140 billion debts.