S&P raises RI's rating

S&P raises RI's rating

JAKARTA (JP): Standard & Poor's, one of the world's influential rating agencies, has raised its long-term foreign currency rating of Indonesia to triple B (BBB) from triple B minus (BBB-).

The agency said yesterday that the upgrade reflects Indonesia's record of prudent financial management and macroeconomic reforms, which have strengthened government finances and diversified the country's crude oil-dependent economy.

The agency's triple B rating implies entities which have an adequate capacity to pay interest and repay principals in a timely manner.

In a statement made available to The Jakarta Post yesterday, the agency said that further appreciation of the Japanese yen will boost the U.S. dollar value of the country's foreign debts this year.

"But the debt burden should continue to decline in the long term due to strong export growth and moderate current account deficits," the statement added.

These favorable factors will, however, be tempered by challenges arising from the country's substantial development needs and the transition in political leadership once President Soeharto leaves office.

Far-reaching financial reforms have broadened Indonesia's tax base, halving the share of energy revenues since 1988 and reducing the budget deficit from 1.5-3.5 percent of the gross domestic product (GDP) in 1990 to a currently negligible level.

Standard & Poor's said that recent progress in rehabilitating state banks and the gradual privatization of a number of state enterprises should also help keep government finances balanced and further reduce the burden of public sector debts, estimated at 44 percent of GDP in 1995.

At the same time, according to the agency, high rates of savings and investment -- more than a third of GDP in 1995 -- will likely sustain healthy rates of economic growth, which should help to narrow still sizable disparities in wealth and income.

Soeharto is widely expected to be re-elected in 1998 but political stability and investor confidence will be tested by his eventual departure from office, said the agency. The continuity provided by a technocratic leadership committed to economic reform, it added, should support a relatively smooth political transition when it comes.(hen)