Fitch Ratings has upgraded Indonesia’s long-term debt rating one level from BBB- with a positive outlook to BBB with a stable outlook.
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Antara Foto/Sigid Kurniawan
A reflection shows the Indonesian Stock Exchange stock ticker on Tuesday (19/12) in Jakarta, displaying the movement of the Indonesian Composite Index (IHSG). The IHSG reached a record high on Dec. 19, closing up by 33.70 points, or 0.55 percent, to 6,167.67, breaking its record of 6,113.653 set on Thursday the week before, on Dec. 14.
JAKARTA, KOMPAS – Fitch Ratings has upgraded Indonesia’s long-term debt rating one level from BBB- with a positive outlook to BBB with a stable outlook. Experts believe the outlook may drive more foreign capital influx to Indonesia.
The rating upgrade also reaffirms the investment grade that Indonesia has enjoyed these past two years. Indonesia received an investment grade from Fitch (Dec. 21, 2016), Moody’s Investors Service (Feb. 9, 2017) and Standard and Poor’s (May 19, 2017).
Bank Indonesia deputy governor Rosmaya Hadi explained on Thursday (21/12) that the rating upgrade reflected Indonesia’s success in maintaining a good investment climate. “Indonesia is recognized for its ability to keep a stable economy amid the turbulently changing global economy,” Rosmaya said, following a Banten Regional Economic Development Coordination Meeting in Serang, Banten.
The rating upgrade also points to the government’s success in creating monetary policies that could reduce the impact of turbulent capital flow. Bank Indonesia assistant governor Dody Budi Waluyo said the rating upgrade indicated Indonesia’s positive economic foundation.
Currently, capital inflows to Indonesia across nearly every instrument are US$9.5 billion to US$9.6 billion. “The rating upgrade to BBB level is the highest level Indonesia has achieved since 1995,” Dody said.
The rating upgrade announced on Thursday garnered positive response from investors. The Jakarta Composite Index (JKSE) reached a new record of 6,183 by the end of Thursday’s final trading session. The transaction volume at the Indonesian Stock Exchange (IDX) reached 23.5 billion shares valued at Rp 10.48 trillion (US$775.5 million).
Finance Minister Sri Mulyani Indrawati said that the rating upgrade was a recognition of good state budget management. “This must be used as an opportunity to improve Indonesia’s economic performance, in terms of growth, job creation and reducing poverty and [the wealth] gap,” Sri Mulyani said at the Vice presidential palace in Jakarta.
Cost of funds
Institute for Development of Economics and Finance (Indef) economist Bhima Yudhistira Adhinegara said the rating upgrade would reduce the cost of government and private sector funds. Nevertheless, Fitch had made several notes. The first was about the potential of state revenues falling way below target. “The second is that poor state revenues will affect the dependence of infrastructure development on state-owned enterprises (SOEs). This will make the SOE’s finances more risky,” Bhima said.
The latest data shows that, on average, cash flow in four infrastructure SOEs – PT Adhi Karya, PT WIjaya Karya, PT Waskita Karya and PT PP – is minus Rp 3 trillion. If the SOEs default, the state budget will bear the burden as underwriter.
Center of Reform on Economics (CORE) executive director Hendri Saparini said that Indonesia had several components necessary to maintaining stable economic growth: stable domestic conditions and inflation rate, as well as declining interest rates.
“Indonesia’s economy has the potential to grow by more than 5 percent next year. However, innovative policies and strategies are needed to optimize such potential,” Hendri said.
