S&P revises Indonesia's rating outlook to stable

S&P revises Indonesia's rating outlook to stable

JAKARTA (JP): International rating agency Standard & Poor's
affirmed on Monday all its sovereign credit and senior unsecured
debt ratings on Indonesia.

The United States-based rating agency also revised the outlook
on its long-term sovereign ratings to stable from negative.

The long- and short-term foreign currency ratings were
affirmed at triple-`C'-plus and single-`C', respectively, and the
long- and short-term local currency ratings at single-`B'-minus
and single-`C'.

The affirmation and outlook revision reflect the elimination
of one significant risk cited by Standard & Poor's in May 2001.

Last week's peaceful transfer of power removes a key near-term
uncertainty and sets the stage (possibly) for a period of
forward-looking governance.

Immediate challenges for the new administration of President
Megawati Sukarnoputri will include:
- Assembling a credible and respected cabinet of ministers,
including an action-oriented, technically competent economic
team;
- Putting an end to long-running political assaults on the
central bank, by strongly reaffirming its independence;
- Communicating to the public the gravity of Indonesia's fiscal
situation and the imperatives, therefore, for painful upward
adjustments in domestic petroleum product prices; and
- Implementing a mid-year fiscal correction, with revenue-
mobilization and expenditure-control measures aimed at achieving
net savings worth about 2 percent of projected 2001 GDP.

These measures, swiftly taken, could bolster political and
economic confidence, support the rupiah, and allow a resumption
of the state asset-sales program, all of which would help
resuscitate relations with official creditors.

It is expected that the disinflationary impact of such a chain
of events would more than offset the inflationary impact of
subsidy reductions.

Looking forward, it is unlikely that Indonesia will be able to
bridge its 2002 budget financing gap without a third Paris Club
rescheduling.

This raises the specter of further, isolated syndicated-loan
defaults to satisfy Paris Club burden-sharing stipulations, a key
factor constraining Indonesia's long-term foreign currency
ratings in the triple-'C' category, Standard & Poor's said.