S&P reaffirms Indonesian rating, outlook negative
S&P reaffirms Indonesian rating, outlook negative
NEW YORK (Dow Jones): Standard & Poor's said it affirmed its triple-C-plus rating on Indonesia's US$400 million Yankee bond due 2006.
Also, S&P said it affirmed its triple-C-plus long-term foreign currency and its single-B-minus long-term local currency issuer credit ratings on Indonesia.
All ratings are removed from CreditWatch with negative implications where they were placed Jan. 9, S&P said.
The country's ratings outlook is now negative, the rating agency said.
S&P said the removal of the ratings from CreditWatch with negative implications reflects:
- "The likelihood of an early resumption of IMF and IMF- related funding, which may now be augmented in response to a further deterioration in macroeconomic conditions. Official external creditor support is important not merely for sovereign debt servicing, but also as a source of budgetary financing for the government, to set up social-safety nets, import food, and subsidize key consumer items.
- "Continuing progress toward rescheduling banking-sector external debt, according to the terms of the June 4 Frankfurt agreement. The repackaging of nontrade-related commercial bank external liabilities should be facilitated by a sovereign guarantee on new loans of one- to four-year maturity, on offer as replacements for up to US$9 billion of bank debt coming due in the next nine months.
- "Ongoing measures to shore up trade finance. A central bank guarantee on all new trade credits is likely to provide some respite to the credit-starved export sectors on which economic recovery will depend.
- "The central bank's efforts to resist multidirectional calls for liquidity support.
The negative outlook reflects continuing uncertainty regarding the new government's commitment to political and economic reform.
"The administration will be challenged to meet both the political and the economic demands of the populace as hardship intensifies and social unrest flares. At the same time, reviving the banks, improving corporate business practices, and deepening institutional reform will remain imperative.
"The outlook also reflects the uncertain outcome of the current staggered approach to debt restructuring. The massive transfer of resources abroad to service debt that is required by this approach will dampen growth prospects and make capital market access difficult for years to come.
"Indeed, recent efforts to bring order to the workout of nonbank private sector external debt may yield only limited results. Given the harsh domestic environment, many Indonesian corporates will be unable to benefit from the establishment of the Indonesian Debt Restructuring Agency, through which the government has offered to assume the exchange-rate risk on new eight-year loans with a three-year grace period on principal repayments," S&P said.