Indonesia's Credit Rating Outlook Raised by Moody's on Government Finances

Indonesia’s credit rating outlook was raised to positive by Moody’s Investors Service, highlighting the strength of Asia’s emerging economies amid soaring debt burdens in developed nations from Greece to Japan.

The outlook on Indonesia’s Ba2 local- and foreign-currency sovereign ratings was changed from stable, Moody’s said in a statement today, three months after Standard & Poor’s raised the country’s credit rating to a 12-year high. Moody’s last upgraded Indonesia’s debt, to two levels below investment grade, in September 2009.

“The core of Indonesia’s growth story is driven by a large domestic market that is appropriately managed by a well-tested economic policy framework,” Aninda Mitra, Moody’s vice- president and its lead sovereign analyst for Indonesia, said in the statement.

The rupiah has risen 15 percent against the dollar in the past 12 months, the biggest gainer in Asia, as investors poured money into an economy that expanded even as the global financial crisis pushed Japan, the U.S. and Europe into recession. Southeast Asia’s largest economy is less reliant on exports than its neighbors, and the re-election of President Susilo Bambang Yudhoyono to a second term last year boosted confidence.

“In the eyes of the international investor, the Indonesian story is a good one,” Fauzi Ichsan, a Jakarta-based senior economist at Standard Chartered Plc, said in a telephone interview today. “In Asia, after China and India, where can investors go?”

Stocks, Rupiah

The benchmark Jakarta stock index rose 1.5 percent to 2,973.36 at noon local time, exceeding its April 30 record close. The rupiah gained 0.9 percent to 9,013 per dollar as at 12:23 p.m.

Moody’s said it expects Indonesia to post “sustained strong growth” and further improvements in the government’s financial and debt position. External disturbances such as the “instability in several European sovereign debt markets” have had no serious implications on Indonesia’s “improving” credit fundamentals, Mitra said.

S&P raised Indonesia’s sovereign credit rating to BB from BB- on March 12, with a positive outlook. S&P and Moody’s both rank Indonesia two levels below investment grade, while Fitch Ratings on Jan. 25 raised its rating to one step below investment.

Race to Raise

Improvements in the level and composition of the government’s debt, along with sustained gains in the country’s external position or a deepening of domestic markets, would be the most likely triggers for a rating upgrade, Moody’s said.

“The three houses are racing in raising Indonesia’s” ratings, said Ichsan. “If the government’s fiscal policy stays conservative and stable with a budget deficit below 3 percent of the gross domestic product, investors will be more convinced that from a fiscal perspective the Indonesian government is prudent.”

Indonesia’s central bank unveiled measures last week to encourage investors to keep their money in the economy longer and reduce volatility in capital flows and the rupiah. The move is “ratings neutral as it does not fundamentally restrict the timely and comprehensive servicing of credit obligations,” Mitra said today.

In the past five weeks, President Yudhoyono has moved to fill a yearlong leadership vacuum at the central bank by nominating Bank Indonesia Acting Governor Darmin Nasution to take the job permanently. He also named Agus Martowardojo as finance minister to replace Sri Mulyani Indrawati, who joins the World Bank as one of three managing directors this month.

“Recent appointments and nominations at the finance ministry and at the central bank are supportive of policy continuity and institutional credibility,” Moody’s said. “The increase in Indonesia’s foreign currency reserves is also notable, while better prospects for foreign direct investment could sustain further improvements in the overall external position in line with its sovereign ratings peers.”

To contact the reporter on this story: Jeran Wittenstein at jwittenstei1@bloomberg.net

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