Tue, 14 Sep 1999

S&P's puts Indonesia's ratings on credit watch

JAKARTA (JP): U.S.-based rating agency Standard & Poor's has placed Indonesia's triple C+ long-term and C short-term sovereign and unsecured foreign currency credit ratings on its credit watch list with negative implications.

The rating agency said in a statement on Monday that the ratings for Indonesia were put on the list over concerns that the East Timor issue would affect the disbursement of financial assistance.

"The credit watch listing reflects the risk that official financial support from the International Monetary Fund, the World Bank and Paris Club creditors may be curtailed for an extended period owing to developments in East Timor," the rating agency said in a statement.

The risk was also due to the high vulnerability of Indonesia's central bank to the confidence sensitive capital movements, despite the bank's adequate level of US$26.8 billion in reserves as of Sept. 9.

The rating agency said the vulnerability was reflected in the renewed downward pressure on the rupiah and was reliant on continued flows of multilateral and bilateral assistance.

It reiterated that future disbursements would be in jeopardy if the crisis in East Timor could not be speedily resolved.

"The situation is further complicated by the political transition underway in Indonesia, with presidential elections in November, reports of growing friction between the military and the Habibie administration and recent proposals by the government for a second round of Paris Club debt rescheduling," the agency added.

The rating agency said the credit watch listing was expected to be resolved within several weeks.

It said that a downgrade would occur if financial assistance from multilateral and bilateral creditors was substantially reduced.

The downgrade in ratings was also possible if the future Paris Club rescheduled agreements, including burden-sharing stipulations, would lead to an effective default on Indonesia's outstanding $776 million of rated foreign currency debt.

The rating agency also affirmed on Monday its ratings on state Bank Negara Indonesia (BNI), namely the triple C plus / C for the bank's local currency and triple C minus / C for foreign currency credit.

The rating agency's review did not mention anything relating to President B.J. Habibie's announcement on Sunday about Indonesia's readiness to receive international peacekeepers in East Timor.

International donors earlier warned Indonesia that they would suspend aid if the country rejected the call to enforce peacekeeping forces in the troubled territory.

BNI

At the same time, the rating agency also affirmed its triple C minus rating on BNI's $145 million note due in 2007.

"The ratings on BNI already incorporate the view that the bank remains vulnerable and dependent on favorable business and financial and economic conditions to meet its financial commitments," the agency said.

The rating agency said the outlook on the ratings for BNI remained negative given the government's delay in recapitalizing the bank and the volatile operating environment facing the bank.

It said that the government's already slow recapitalization of the bank would further be disrupted by the potential curtailment of official financial support.

The recapitalization of BNI started in July following the signing of a memorandum of understanding between the Indonesian government and IMF, under which the government would inject capital into BNI in three stages: Sept. 30, Dec. 31 and March 2000.

The program took place after BNI announced an equity deficit of $5.4 billion, at an exchange rate of Rp 8,000 to one U.S. dollar, equivalent to 79 percent of total assets as of Dec. 31 last year. (cst)