S&P Positive on Indonesia's Reforms, Finance Minister Says

  • Indonesia hopes S&P will upgrade country rating: Brodjonegoro
  • Brodjonegoro cautions govt budget revenues are falling short

Indonesia’s finance minister said S&P Global Ratings was impressed with the government’s reform efforts during a trip company officials made to Jakarta to assess the country’s sovereign rating.

S&P, which said in December it may raise Indonesia to investment grade within a year, met Indonesian President Joko Widodo and ministers on Tuesday. The government hopes the company will lift its rating, Finance Minister Bambang Brodjonegoro said in an interview after the talks.

“I think the tone is positive,” Brodjonegoro said late Tuesday at his office. “In general they are satisfied and excited about the commitment of the reforms from the president and the government.”

A move by S&P to raise Indonesia from BB+, the highest junk grade, could provide a filip to the country’s bonds and currency by enabling more funds to invest in Southeast Asia’s largest economy. Moody’s Investors Service and Fitch Ratings already rank Indonesia as investment grade.

The rupiah rose 0.1 percent to 13,280 a dollar in Jakarta, according to prices from local banks. The Jakarta benchmark stock index gained 0.6 percent while 10-year sovereign bonds were steady. Emi Nakata, a communications manager at S&P in Singapore, declined to comment on the rating company’s visit to Jakarta.

State Revenues

Brodjonegoro said he’s maintaining the country’s growth target of 5.3 percent this year, after economic expansion in the first quarter fell short of expectations at 4.92 percent.

Yet he cautioned that uncertainty over the implementation of a tax amnesty bill, which is being held up in parliament, may disrupt state revenues. The government, which is relying on infrastructure spending to boost growth, has only collected 23 percent of its total 2016 budget revenue as of Monday, he said. S&P said in December that an upgrade was possible if the government improved its budget spending.

“Indonesia has achieved about half of what is asked by S&P, but not all,” said Trinh Nguyen, an economist at Natixis Asia Ltd. in Hong Kong, adding that it was not a certainty that the country will get an upgrade. The government has let fuel prices adjust more freely and made public spending more efficient, but GDP per capita dropped in 2015 and the fiscal deficit is widening, she said.

The country is looking to diversify its economy and have more partnerships, trade and investment with Islamic countries and businesses, Brodjonegoro said. The government will push companies to issue more corporate sukuk for financing, he said.

“Now we are showing that we are biased toward maintaining stability,” Brodjonegoro said.

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