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

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)