Standard & Poor's raises Indonesia credit rating

Rodiano Bonacci
Mag 20, 2017

Standard & Poor's (S&P) Global ratings raised Indonesia's credit rating to investment grade, smoothing the way for capital inflows into the country, the S&P said on its website Friday. Stocks surged to a record and rupiah advanced.

S&P upgraded Indonesia's sovereign credit outlook to BBB-, its lowest investment grade, up from the previous junk status of BB+.

Fitch Ratings upgraded Indonesian sovereign debt to investment grade in 2011 and Moody's Investor Services followed in 2012.

"Indonesia's increased focus on realistic budgeting has reduced (the) likelihood that shortfall in future revenue would widen general government deficit significantly", he said. The upgrade reflects "our assessment of reduced risks to Indonesia's fiscal metrics", it said.

Government coffers were also bolstered by a successful tax amnesty. The economy is also being buoyed by a rebound in exports and strong consumer spending.

Speaking at an investment conference on late on Thursday Bank Indonesia's (BI) deputy governor Perry Warjiyo said S&P should now upgrade Indonesia's ratings given that all aspects of the economy have improved. The rupiah rose as much as 0.3 percent, paring losses of as much as 0.5 percent earlier and taking gains this year to 1 percent.

The rating upgrade "could allow Indonesia to access a pool of eligible foreign investors that only invests in at least [investment grade]-rated assets, lowering funding costs", said Trinh D. Nguyen, an economist at Natixis. "Guess S&P finally ran out of excuses." said Edwin Gutierrez, head of emerging-market sovereign debt at Aberdeen Asset Management in London.

The move is a boost for President Joko Widodo, who has been seeking to attract more foreign investment and strengthen the economy, which has been slowing in recent years as demand falls for the country's key commodities exports. Net government debt will probably be contained well below 30 per cent of GDP, it said.

"The Indonesian authorities have taken effective expenditure and revenue measures to stabilize the country's public finances despite the terms of trade shock", S&P said.

In recent quarters, Indonesia has had annual growth of 5 percent or less.

"More upgrades are possible, with Fitch and Moody's potentially moving Indonesia up the scale further into investment grade", Wellian Wiranto, an economist at Oversea-Chinese Banking Corp.in Singapore, wrote in a note. Tough reforms got Indonesia to this point. "All these may be a cause for a raucous celebration, but also quiet reflection".

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