S&P upgrades Indonesia, outlook positive

New York, Dec. 21 - Standard & Poor's upgraded Indonesia, raising its long-term foreign currency sovereign credit rating by one notch to B+ and its local currency rating by two notches to BB. The outlook is positive.

S&P said the upgrade reflects Indonesia's macroeconomic stability, declining debt and debt-servicing burden, steadfast fiscal management, and favorable external liquidity position.

Indonesia's ratings are constrained by its high level of public and external debt, S&P noted. Despite falling steadily over the past four years, the public sector's net debt burden, including domestic and external liabilities of non-financial public sector enterprises, remains high at an expected 78.5% of GDP at the end of 2004.

The net external debt of the public sector at a projected 60% of current account receipts in 2004 is lower than the median level in similarly rated countries. However, well-planned funding programs are necessary to meet principal payments of about $6.5 billion due in each year between 2005 and 2008, especially as the end of the IMF loan program means no possibility of further Paris Club debt restructuring, S&P said.

The rating agency also said the narrowly based economy and modest pace of growth are further credit negative along with continued political uncertainty.

However, the ratings are helped by gradually improving external liquidity. Macroeconomic stability and improved political conditions, coupled with ongoing current account surpluses, enabled a steady accumulation of foreign reserves, hovering at about $36 billion this year from $27 billion in 2001, S&P said.

Given negligible short-term debt, even with smaller projected current account surpluses, the ratio of gross financing requirement to reserves is forecast to stay at a low 6% for 2005, signaling one of the strongest short-term liquidity positions among peers, the rating agency said. The risk of default should therefore continue to diminish gradually, with current account surpluses expected to continue, underpinned by prudent monetary policy.

The ratings are also supported by steady fiscal adjustment, with the government making use of relative political and macroeconomic stability to generate primary surpluses of over 2% in the past several years.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.