Moody's Also Says Indonesia Economy Now Investment Grade




Jakarta Globe | January 18, 2012


Moody’s Investors Service raised Indonesia’s sovereign debt rating on Wednesday to investment grade following Fitch Ratings’ similar move last month.

Moody’s raised the nation’s foreign and local currency bond ratings to Baa3 from Ba1 with a stable outlook. Indonesia lost its investment-level rating in late 1997, when the financial crisis pushed the country to devalue the rupiah.

A stable outlook means the country is not in line for any immediate rating change.

“The stable outlook also reflects the expectation of continued policy flexibility and the adept management of risks stemming from global financial market volatility, based in turn on the tepid recovery in the US and the ongoing sovereign debt stress apparent in the euro zone,” Moody’s said in a statement.

The upgrade placed Southeast Asia’s largest economy at the lowest investment grade level, which is the same as India, which possesses the third-largest economy in Asia.

Moody’s cited the presence of policy buffers and tools that address financial vulnerabilities and a healthier banking system capable of withstanding stress.

“Robust growth has been accompanied by the continued health of its external payments position, supported by increasingly large flows of foreign direct investment, while inflationary expectations are becoming better anchored at a more stable and historically lower level,” Moody’s said.

Indonesia’s inflation, which rose 3.8 percent in December at the slowest pace in 21 months, is forecast by the government to rise between 3.5 percent and 5.5 percent this year. The $706 billion economy is forecast by Bank Indonesia to expand by 6.3 percent this year from an estimated 6.5 percent expansion in 2011.

“Prudent fiscal management has contained budget deficits at very low levels and has reduced the government’s debt burden as a share of gross domestic product,’’ Moody’s said.

The government, which has been selling bonds for the past few years, forecast the budget deficit to narrow to 1.5 percent of gross domestic product this year from 2.1 percent last year.

The country’s debt as a percent of GDP fell to 27.3 percent last year from 28.4 percent in 2010, according to data from the Finance Ministry.

Economists and analysts said the nation deserved the upgrade given its sound and strong economy and its efforts to keep its budget deficit under control. The upgrade is expected to boost long-term capital inflow that could be used to finance urgent infrastructure needs and help nurture economic growth.

“The upgrade by Moody’s has been anticipated,’’ said David Sumual, an economist at Bank Central Asia. “It is a matter of time before Standard & Poor’s follows suit.”

Last April, Standard & Poor’s raised the rating to BB+, which is one level below investment grade, with a positive outlook. Fitch Ratings on Dec, 15 raised Indonesia to investment grade after it had remained at junk level since 1997.

News of Moody’s upgrade to investment level sent Indonesian financial markets higher on Wednesday, with the Jakarta Composite Index up 0.6 percent to 3,978.13, just shy of the psychological 4,000 level.

The rupiah also erased losses, strengthening 0.5 percent to trade at 9,160 to the dollar in Jakarta. It had weakened as much as 1 percent before the news.