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Standard & Poor’s Ratings Services says recent comments by governments from industrialised countries on granting a moratorium on official debts of countries hit by the December 26 tsunamis are unlikely to ensnare Indonesia’s commercial obligations, and therefore not affect Standard & Poor’s sovereign credit ratings on Indonesia (foreign currency B+/Positive/B, local currency BB/Positive/B).

The gesture, if approved during the Paris Club forum or in another approach, will largely reflect the magnanimity of developed countries.

Although details are still sketchy, the finalised debt relief programme might come in various forms, including suspension of debt servicing, debt rescheduling, or debt restructuring.

However, these measures are likely to target official debt obligations, and aimed at relieving budget pressures. The possibility that the official creditors will enforce comparability of treatment on commercial debt creditors, normally found under a Paris Club rescheduling programme, is remote.

Standard & Poor’s has lowered Indonesia’s sovereign credit rating to ‘SD’ (selective default) on three previous occasions when Indonesia rescheduled bank loans in conjunction with Paris Club restructurings.

At this stage, Indonesia has the capability to service its domestic and foreign debt. The devastation of outlying provinces by the Indian Ocean tsunami did little to detract its debt-servicing ability. While official creditors may choose to initiate debt forgiveness or restructuring, there is no obvious reason why this would flow on to commercial debt. Indeed, should debt restructuring be forced onto private sector debt, it would most likely be counterproductive to the continuing recovery for Indonesia.

Although this is well intended, inducing a default by Indonesia may well be a serious impediment to future private investment and lending to Indonesia.
Nevertheless, if the official debt relief programme imposes similar debt payment rules on commercial obligations, Standard & Poor’s would characterise any rescheduling – when the new terms are less favourable to the creditors than the terms of the original issue – as coerced exchanges, and defines them as default even if affected creditors have not voted to declare an event of default. In that case, the affected debt securities would be lowered to ‘D’, and the ratings on Indonesia lowered to ‘SD’.