International rating agency Standards and Poor's on March 15, hailed Jakarta's move to cut costly fuel subsidies, a decision that has sparked widespread protests in Indonesia. Standard and Poor's credit analyst Agost Benard said the step showed the new government of President Susilo Bambang Yudhoyono was capable of keeping pledges to revive the economy through deft handling of tricky financial policy.
"It is encouraging that the administration has made good on its promise to cut fuel subsidies and that it was able to accomplish this at minimal political cost," Benard said in a statement.
Yudhoyono's government earlier this week took the controversial step of unilaterally cutting fuel subsidies, causing hikes in fuel prices averaging up to 30 percent.
Parliamentary and street protests have followed the move but these have been muted compared to the social upheaval that followed similar measures in 1998 which contributed to the downfall of long-time dictator Suharto. Benard said the move is expected to cut spending by 20 trillion rupiah (2.2 billion dollars), enabling a reduction of Indonesia's fiscal deficit.
The government is planning to cut the budget deficit to 1.1 percent of Gross Domestic Product (GDP) this year from an estimated 1.3 percent in 2004. Standard and Poor's also assigned a B-plus credit rating to Indonesia's proposed issue of one billion dollars of global bonds.
The sovereign ratings on Indonesia are supported by the country's declining debt and debt-servicing burden, steadfast fiscal management and favourable external liquidity, it said.
The rating agency noted that public sector debt had fallen to an estimated 78.5 percent of GDP at the end of 2004 from 96.6 percent in 2001.