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.