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.