Jakarta – Standard and Poor's hurriedly restored Indonesia's long-term foreign currency sovereign rating Wednesday, just a day after a downgrade by the US agency sparked an angry central bank rejoinder.

Performing a rare about-face, the New York-based credit assessor said it had "reset" the rating from "Selective Default" back up to "Triple-C-Plus."

Standard and Poor's said the move "reflects Indonesia's closure of a distressed rescheduling of 210 million dollars worth of principal on the rated 310 million dollar loan."

On Tuesday the agency had said the rescheduling of the 310 million dollar loan disbursed in 1994 by a syndicate of 70 banks, now led by Japan's Bank of Tokyo-Mitsubishi Ltd., had qualified it for the selective default rating.

But Wednesday it said all 70 of the affected creditor banks "have, via powers of attorney, signed the rescheduling amendment, which now supercedes the original indenture and is enshrined in law."

"Therefore Indonesia's sovereign default is cured, removing an obstacle to the rescheduling of 4.2 billion dollars of principal-repayment obligations to Paris Club bilateral creditors due between August 6, 1998 and March 31, 2001."

The central Bank Indonesia, in its sharp protest against the earlier downgrade, said late Tuesday: "The government of Indonesia has never defaulted on its commercial bank loans or bonds."

The selective default rating applies when a country has selectively defaulted on an issue or class of obligations but will continue to make timely payments on its other obligations.

The Triple-C rating denotes a situation in which a country is "currently vulnerable to non-payment" and is dependent on favourable economic conditions to repay debt.

Takahira Ogawa, Standard and Poor's director of sovereign ratings in Singapore, explained the hasty backtrack by saying that on Tuesday the agency was aware of an agreement signed between Indonesia and its creditors late Monday but did not have all the details.

"S and P restored the ratings Wednesday because all the syndicate members had signed ... the rescheduled agreement," he told AFP. "The restructuring of the debt clears the risk on the progress of rescheduling based on the prescribed agreement," he said.

The agency on Wednesday also affirmed its Triple-C-Plus senior unsecured ratings on Indonesia's 400 million dollar Yankee bond due August 2006 and its 26 million dollar Euro floating-rate note due February 2001. The outlook is now "stable," it said.

The outlook reflected "the restoration of monetary discipline, the stabilization of the country's near-term international liquidity position and efforts to restructure and recapitalise the banking system."

"The central bank has halted the hemorrhaging of liquidity support to the domestic banking system, regaining control over its balance sheet, and thereby prevented a slide into hyperinflation," it said.

But on the flipside it cautioned that the ratings were constrained by a "devastated corporate sector" and "ongoing political uncertainties."

Up to 40 percent of the 62 billion dollars year-end 1998 non-bank private sector external debt stock may be in interest and/or principal arrears, "mirroring equally widespread private sector local currency defaults."

"With corporate restructuring still embryonic ... working-capital bottlenecks will continue to delay real economy recovery," it said.

On the political front a planned four-month period between parliamentary and presidential elections this year "augurs a policy hiatus, and could be followed by a new administration with a weaker commitment to honoring sovereign debt obligations."

Indonesia's credit ratings have been savaged since the country plunged into an economic crisis in mid-1997 when its currency collapsed in the Asian contagion.