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SINGAPORE (Standard & Poor's) Feb. 9, 2006--Standard & Poor's Ratings Services
said today it revised its outlook on the sovereign credit ratings for the
Republic of Indonesia to positive from stable. At the same time, Standard &
Poor's affirmed its 'B+/B' foreign currency and 'BB/B' local currency
sovereign credit rating.
"The outlook revision takes into account the more favorable policy
setting that emerged in the wake of significant adjustments in fiscal and
monetary policy stance, and the expectation that this will improve deficit and
debt ratios further," said Standard & Poor's credit analyst Agost Benard.
Standard & Poor's believes these changes, including the fuel subsidy cuts
and a more aggressive monetary policy, combined with a recent change in the
government's economic team, will enable the administration to continue
improving credit fundamentals of the sovereign, namely, reduce its debt burden
and vulnerability to currency weakness. It also reflects the expectation of
better policy coordination and implementation, such that future shocks will be
tackled in a more timely and appropriate fashion.
Prospects for a more constructive policy environment received a further
boost through President Susilo Bambang Yudhoyono's limited but well-targeted
cabinet reshuffle in December 2005. Respected technocrats were appointed to
the important roles of Economic Coordination Minister and Finance Minister.
These policy shifts helped restore investor confidence in the
administration's commitment to responsible macroeconomic management, by
demonstrating a capacity and willingness to undertake unpopular measures.
Indonesia's credit rating is supported by improved political and policy
climate, continued macroeconomic stability, prudent fiscal management,
declining debt and debt-servicing burden, and a favorable external liquidity
position. External vulnerability, however, remains high, while structural
impediments continue to hamper growth.
The ratings for the sovereign could improve with further progress in
microeconomic reforms, together with continued adherence to tight fiscal
policies to aid debt reduction and lower the attendant vulnerability posed by
its large foreign debt. Demonstrated improvements in the government's
administrative and implementation capacity would likewise boost its
creditworthiness. Conversely, the positive outlook could come under review
should there be slippage or withdrawal from fiscal consolidation and economic
reforms, or if policy coordination failures between various parts of the
government surface again and constrain timely and appropriate response to
emerging macroeconomic challenges.
Complete ratings information is available to subscribers of
RatingsDirect, Standard & Poor's Web-based credit analysis system, at
www.ratingsdirect.com. All ratings affected by this rating action can be found
on Standard & Poor's public Web site at www.standardandpoors.com; under Credit
Ratings in the left navigation bar, select Find a Rating, then Credit Ratings
Search.
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