Indonesia won its second credit rating upgrade in five weeks as Moody’s Investors Service returned the country to investment level for the first time since the Asian financial crisis.
The foreign- and local-currency rating was increased to Baa3 from Ba1, Moody’s said in a statement yesterday. The outlook is stable. The upgrade brings Southeast Asia’s largest economy to the lowest investment grade, the same level as India, according to data compiled by Bloomberg.
Emerging-market economies from Brazil to Turkey and the Philippines are winning rating upgrades as governments take steps to contain budget deficits and bolster growth, even as Europe’s debt crisis prompted Standard & Poor’s to cut the credit ratings of nine members of the 17-nation euro area on Jan. 13. Yesterday’s decision may aid President Susilo Bambang Yudhoyono’s efforts to spur expansion by boosting investment.
“It’s a positive development for the economy and backs the broader reform agenda rolled out by the government,” said Radhika Rao, an economist at Forecast Pte in Singapore. “This should also benefit rupiah-denominated assets and attract more investments into the country, thereby helping with the longer-term infrastructure-related demands.”
The nation’s currency erased losses yesterday after the announcement and gained 0.5 percent to 9,028 per dollar as of 3:17 p.m. in Jakarta today, according to prices from local banks compiled by Bloomberg. Bonds extended gains, with the yield on the 4.875 percent dollar notes due 2021 falling six basis points, or 0.06 percentage point, to 3.93 percent, according to prices from Royal Bank of Scotland Group Plc.
Fitch Ratings brought Indonesia back to investment grade last month after 14 years of junk ratings. It raised the nation’s long-term foreign and local currency rating to BBB-with a stable outlook on Dec. 15, citing “strong and resilient” growth and declining public-debt ratios.
S&P, which still rates Indonesia one level below investment grade, will probably follow, said David Sumual, an economist at PT Bank Central Asia in Jakarta.
Indonesia’s “credit fundamentals are generally evolving in a positive direction,” Agost Benard, S&P’s Singapore-based associate director of sovereign and international public finance ratings, said in an e-mailed statement today.
An upgrade would depend on the effects of “improvements in the public balance sheet, reduction in external vulnerability through rising foreign reserves, and continued progress to develop a deeper and more liquid domestic capital market, as well as structural and institutional reforms,” he added.
Resilient to Shocks
“Indonesia’s cyclical resilience to large external shocks points to sustainably high trend growth over the medium term,” Moody’s said. “A more favorable assessment of Indonesia’s economic strength is underpinned by gains in investment spending, improved prospects for infrastructure development following key policy reforms, and a well-managed financial system.”
Indonesia, which needed a bailout from the International Monetary Fund during the 1997-98 Asian financial crisis, avoided following the world’s largest economies and neighboring countries into a recession during the 2009 global slump.
The country’s local-currency bonds have returned 28 percent in the past year, the best performance among 10 Asian debt markets tracked by HSBC Holdings Plc. Its dollar bonds gained 9 percent in the same period, the second-best among 11 markets in the region.
“This upgrade will confirm how good Indonesia’s investment climate is, which will make foreign direct investment flow stronger,” said Felix Sindhunata, an economist at PT Henan Putihrai in Jakarta. Still, a “rating upgrade will be nothing if the government has no action” to improve infrastructure and stem corruption.
Yudhoyono’s government forecasts a 6.5 percent expansion in 2011, and the president targets the ratio of debt to gross domestic product to drop to 24 percent in 2012 from 25 percent in 2011.
The nation’s parliament approved a land-acquisition bill on Dec. 16 that will allow Yudhoyono’s administration to accelerate road, port and airport projects. The government is also setting up a new financial market regulator that is due to start operating in January 2013, supervising capital markets, insurers, pension funds and other non-bank institutions.
Indonesia may become a safe haven country as Moody’s upgrade helps attract investors to Indonesian stocks, bonds and boost foreign direct investment, Bank Indonesia Deputy Governor Hartadi Sarwono said yesterday.
Investment in the three months ended Dec. 31 rose 19 percent from a year earlier to 70.2 trillion rupiah ($7.7 billion), Gita Wirjawan, chairman of the Investment Coordinating Board, said in Jakarta today. For 2011 as a whole, investment gained 21 percent from a year earlier to 251.3 trillion rupiah.