Moody’s Investors Service upgraded Indonesia’s credit rating to the highest level since the 1997 Asian financial crisis, citing the nation’s “economic resilience” and improving public debt position. Bonds rose.
The government’s foreign and local-currency bond rating was raised to Ba1 from Ba2, Moody’s said in a statement today. That’s one step below investment grade and puts Indonesia on par with Greece, which was placed on review for a possible downgrade by Moody’s last month.
Rising exports are fueling growth and credit upgrades for emerging markets from China to the Philippines, which are outperforming debt-laden developed economies from Greece to Japan. Bank Indonesia forecasts Southeast Asia’s biggest economy will expand by as much as 6.5 percent this year from an estimated 6 percent in 2010.
“It’s now a matter of time before Indonesia reaches investment grade,” said Helmi Arman, a bond strategist at PT Bank Danamon Indonesia in Jakarta who expects Moody’s to raise the rating to investment level in 2012. “The key issue is how high they will let inflation rise before they increase interest rates.”
The Indonesian central bank has kept its benchmark interest rate at a record low of 6.5 percent for more than a year, helping support domestic consumption, which accounts for about two-thirds of the economy. Consumer prices rose 6.96 percent last month from a year earlier, a report showed Jan. 3, exceeding the 6.71 percent median forecast in a Bloomberg survey of 14 economists.
Indonesia’s 10-year dollar bonds gained after today’s upgrade. The yield on the 5.875 percent note due March 2020 fell 10 basis points to 4.56 percent, from 4.66 percent late last week, according to prices from the Royal Bank of Scotland Group Plc. The rupiah was little changed at 9,070 per dollar, according to data compiled by Bloomberg.
The rating’s outlook is stable, Moody’s said in the statement. The company placed Indonesia’s Ba2 rating on review for a possible upgrade Dec. 1, it said.
“The momentum in the economy is expected to be sustained by steady domestic demand, a reasonable pace and sequencing of policy and structural reforms, and rising foreign direct investment,” Aninda Mitra, a vice president at Moody’s and its lead sovereign analyst for Indonesia, said in an e-mailed statement today. “Furthermore the country’s debt position and reserve adequacy remain on an improving trajectory relative to most of its rating peers.”
Indonesia’s economy escaped a recession during the 2009 global slowdown and its expansion has spurred capital inflows, pushed stocks to a record and lifted the rupiah.
Ireland, which became the second euro-area country to get a bailout, saw its debt rating lowered two steps by Standard & Poor’s on Nov. 23. In contrast, Moody’s raised China’s debt rating to its fourth-highest level of Aa3 on Nov. 11. A day later, S&P boosted the credit ranking of the Philippines to the highest in more than seven years.
S&P lifted Indonesia’s sovereign credit rating to BB from BB- on March 12, two levels below investment grade, with a positive outlook. Fitch Ratings on Jan. 25 raised its rating to one step below investment.