S&P Affirms Ratings

Standard & Poor's Ratings Services affirmed its ratings on the Republic of Indonesia with a stable outlook on Tuesday (25/9/07), saying the ratings are underpinned by continued improvements in the nation's debt and external liquidity positions.

S&P has 'BB-/B' foreign currency and 'BB+/B' local currency ratings on Indonesia, Thomson Financial reported.

General government debt is expected to decline further to 44% of GDP this year, down from 46% in 2006 and over 100% in 2000. This reduction comes on the back of small, but persistent primary surpluses, a falling interest burden, and strong nominal GDP growth.

"Despite a modest rise in the central government deficit, we expect the government to adhere to fiscal discipline," said S&P analyst Sani Hamid. The current account surplus continued to grow and there were steady FDI inflows and portfolio investments, he added.

Vice President Jusuf Kalla hailed a dramatic short-fall in government spending as evidence that the government’s anti-corruption campaign was biting.

He said Friday that the country had only spent about a third of its proposed capital investment in the first months of 2007, Bloomberg News reported.
The government planned to spend Rp68.3 trillion ($7.5 billion) to build roads, bridges, government offices and other public facilities when it announced the budget for this year.

“Contract prices were revised down as transparency increased,” Kalla told reporters in Jakarta. He cited the Health Ministry as an example, where the purchase price of supplies was cut by 40% from the original estimate.

In a positive sign on the infrastructure front, the finance ministry said the government would provide full guarantees for loans provided by the creditors of state-owned electricity company PLN to finance its crash program in electricity sector.

A presidential regulation issued on September 19 is expected to speed up the implementation of the program under which state utility PLN is to build coal fired power plants with a total capacity of 10,000 MW to be completed before 2010.

The stock market closed the week on a cautious note, with the Jakarta Stock Exchange composite index falling 0.8% on Friday to close the week at 2,359.21. For the week, the index rose 23.72 points or 1.0%, at one stage hitting a two-month high.

Dealers said Friday that investors cut their positions ahead of September CPI data due out on Monday. The rupiah firmed during the week to end at 9,145/9,150 to the US dollar.

Most analysts expected relatively high inflation for September as the Idul Fitri holiday season approaches.

Strong investor confidence was apparent when the government sold a total of Rp6.95 trillion ($762 million) in bonds, as investors looked to lower interest rates.

Bank Indonesia Deputy Governor Miranda Goeltom said Tuesday that the central bank is likely to next consider a further rate cut in November.
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