PRESS RELEASE: S&P Ups Indonesia Foreign Currency To B+

The following is a press release from Standard & Poor's:

SINGAPORE (Standard & Poor's) Dec. 22, 2004--Standard & Poor's Ratings
Services today raised its long-term foreign currency sovereign credit rating on
Indonesia to B+ from B. At the same time, Standard & Poor's raised its local
currency rating on Indonesia two notches to BB from B+. Both short-term ratings
were affirmed at B. The outlook is positive.

The rating upgrades and positive outlook reflect ongoing progress in
Indonesia's macroeconomic stability, steadfast fiscal management, declining debt and
debt-servicing burden, and favorable external liquidity. Further progress in
these areas could help reduce the government's vulnerability to its substantial
debt burden.

Despite a widening in the budget deficit to a projected 1.5% of GDP for 2004
from the planned 1.2%, Standard & Poor's expects the government to continue
the overall direction of fiscal consolidation, and that primary surpluses near
2% of GDP will be maintained.

"Although government fuel subsidies were four times the budgeted amount due
to skyrocketing oil prices, the government responded by cutting expenditure to
limit the rise in the deficit, and maintain a primary surplus at a projected
1.8% of GDP for this year," said Standard & Poor's credit analyst Agost Benard,
associate director in the Sovereign & International Public Finance Ratings
Group.

"Although these cuts were at the expense of much-needed development spending,
the move sends a positive signal, as it indicates commitment to fiscal
consolidation despite difficult conditions," said Mr. Benard. "Nevertheless, the
government's fuel subsidy policy needs to be curtailed if it is not to become an
even greater drag on the country's finances, and to free up funds for other
needs, such as infrastructure." In that regard, last week's 41% rise in the
prices of high-quality gasoline and liquefied petroleum gas (LPG) is an
encouraging development, and also prepares the public for higher prices for gasoline and
other widely used fuels.

Although deficit targets remain vulnerable to interest rates and, in the
absence of reform, to oil prices, continued primary surpluses will aid further
debt reduction, which has seen significant advances over the past few years. The
public sector net debt burden, which includes domestic and external
liabilities of non-financial public sector enterprises, is projected to fall to 72% of
GDP by year-end 2005, after peaking at about 130% in 2000. The associated
decline in the debt-servicing burden is similarly impressive, with interest
payments falling to a projected 17% of general government revenues in 2005, from 30%
in 2002. This should enable a rise in development spending, which over the
past several years has fallen dramatically to about 2% of GDP, from over 5% in
2000.

The upgrade also reflects Indonesia's improved external liquidity, with close
to US$36 billion in foreign exchange reserves at year-end 2004. Despite lower
projected current account surpluses, Standard & Poor's expects the Republic
to maintain adequate external liquidity because of favorable external
conditions and better flows of investment after this year's successful elections. As a
result, Standard & Poor's expects Indonesia to be able to meet its heavy
external debt amortization schedule, which amounts to about US$6.5 billion a year
over the next few years.

The main challenge facing the new administration is to breathe life into
Indonesia's economy, in which growth remains relatively modest and narrowly based
compared with its regional peers. Moreover, growth is insufficient to reduce
poverty and unemployment.

"Indonesia's macroeconomic fundamentals put it in good stead to achieve
faster and more broad-based growth than the average 4.1% of the past five years,
which was heavily reliant on private domestic consumption," said Mr. Benard.
"However, for the recent uptick in growth to take on a more robust and sustained
character, the authorities need to lift the country's chronically low
investment ratio, which has fallen to less than 20% of GDP. That, in turn, hinges on
implementing a broad set of microeconomic reforms, particularly in the
judicial, legal, and labor market areas."

The new government is well positioned to build on economic and political
stability to confront these issues, but its aptitude and resolve in pushing
through and implementing reforms have yet to be tested. "If there is only slow
improvement in these areas, it would limit the country's trend growth," Mr. Benard
said.

The new government's continued and timely implementation of reforms, and
continued fiscal consolidation would boost the credit ratings on Indonesia.
Conversely, the ratings could be at risk if institutional weaknesses that hinder
policy coordination and impede timely response to political and external shocks
are not dealt with. Also, if the government draws back from fiscal
consolidation because of political paralysis or the failure of economic policy, the
ratings could also come under stress.

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.