Investment in Indonesia is projected to increase again after rating agency Moody\'s Investors Service raised its rating of Indonesian government debt to one level above the lowest investment grade rating.
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Kompas/Hendra A Setyawan
Construction is ongoing on the Cinere-Serpong toll road in Jombang, South Tangerang, Banten, on Sunday (1/4). The 10.14-kilometer toll road is part of the Jakarta Outer Ring Road II, which includes Soekarno Hatta-Kunciran-Serpong-Cinere-Jagorawi-Cibitung-Cilincing-Tanjung Priok Port.
JAKARTA, KOMPAS — Investment in Indonesia is projected to increase again after rating agency Moody\'s Investors Service raised its rating of Indonesian government debt to one level above the lowest investment grade rating.
However, Indonesia still needs to be careful to manage debt, especially the debt of state-owned enterprises, despite the credit rating upgrade.
On April 13, 2018, Moody\'s upgraded Indonesia\'s sovereign credit rating from Baa3 with a positive outlook to Baa2 with a stable outlook. In addition to Moody’s, Indonesia has received a credit rating of Baa2 or BBB from three other global rating agencies, such as Fitch Ratings, which upgraded its rating in December 2017, the Japan Credit Rating Agency (JCRA) on Feb. 12, 2018 and Rating and Investment Information, Inc (R&I) on March 7, 2018. Meanwhile, the credit rating from Standard and Poor’s (S&P) remains at BBB-.
The Baa2 rating from Moody\'s means that the securities issued by the Indonesian government have a moderate risk. The stable outlook indicates that the position of the credit rating will be stable for some time in the future and shows a balanced risk.
Countries that have the same rank with Indonesia include Spain, Colombia, Uruguay, Philippines, Bulgaria, Italy and Panama.
Josua Pardede, a senior economist at PT Bank Permata Tbk, said in Jakarta on Friday that the rating upgrade showed that the government’s fiscal and monetary policies were more credible and effective in maintaining macroeconomic stability. The fiscal deficit and debt were well maintained, he said.
The monetary policy of Bank Indonesia (BI) in managing inflation and exchange rate stability helped the investment climate. "The investment climate of portfolio and direct investment to the industrial sector is expected to further improve," said Josua.
Moody\'s noted, however, that the debts of state-owned enterprises (SOEs) were expected to increase along with the infrastructure development program. According to Josua, to limit the financial burden of SOEs, the government needs to further encourage infrastructure development projects through public-private partnerships and increase non-state budget investment financing schemes (Pina).
In a report titled “Asia-Pacific Sector Insights: A Look into the Corporate & Infrastructure Sector for Indonesia” S&P mentions that the debts of four major state-owned construction companies jumped 57 percent to $11.3 billion in 2017.
Need for caution
BI Governor Agus Martowardojo said the rating upgrade showed Moody\'s appreciation of Indonesia\'s monetary and fiscal management. Monetary policy was managed consistently and carefully to maintain macroeconomic and financial stability, he said.
Moody\'s rating upgrade indicated that BI was able to keep the rupiah exchange rate flexible in line with the economic fundamentals, Agus said. “BI is also believed to be able to reduce external risks," said Agus.
The chairman of the Financial Services Authority (OJK), Wimboh Santoso, said Moody\'s rating upgrade showed confidence in the stability of the financial system of Indonesia amid the dynamics of the global economy and the geopolitical risks.
The head of communication and information services bureau of the Finance Ministry, Nufransa Wira Sakti, said in a press release that Moody\'s decision to raise Indonesia\'s investment rating showed that the government’s structural and fiscal reforms were considered good. However, the government is also aware that there are still many challenges that have to dealt with to promote more sustainable and equitable economic growth.
"The government will continue to take proactive steps to face the challenges by managing state budget and fiscal policies through credible and effective approaches," Nufransa said.
