Moody\'s Investor Service has raised the long-term debt rating of the Indonesian foreign exchange by one level from Baa3 with positive outlook to Baa2 with stable outlook.
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Containers are unloaded at the New Priok Container Terminal One (NPCT1) in North Jakarta on Friday (13/4/2018). Bank Indonesia has projected economic growth of 5.11 percent in the first quarter, in line with improving economic conditions since the beginning of the year.
Moody\'s Investor Service has raised the long-term debt rating of the Indonesian foreign exchange by one level from Baa3 with positive outlook to Baa2 with stable outlook.
This gives Indonesia investment grade rating on a par with the Philippines and India.
The upgrading affirms the improving macroeconomic fundamentals and stability of the Indonesian economy, which is sustained by credible and prudent fiscal and monetary policies. The ability to maintain its strong financial foundation has also convinced Moody\'s of Indonesia\'s resilience to possible turbulence from global factors.
The country’s economic resilience to potential external shocks is reflected in improvements in its external vulnerability indicator, particularly the 51.3 percent foreign exchange ratio for short-term and long-term debts that will mature within a year.
The debt-to-gross domestic product (GDP) ratio has also increased, especially with the rise in infrastructure development financing, but the figure is still below the average 39-46.2 percent of investment-worthy countries. Most of the debts are also long-term debts.
The prudence of our fiscal policies is reflected in the state budget (APBN) deficit, which remains below 3 percent of GDP. The improvement in economic fundamentals is also supported by other improvements, including a stable, low inflation rate and US$119 billion in foreign exchange reserves. Moreover, expanded destinations and more diversified commodities reflect structural improvements in exports. These conditions have contributed to improved current account deficits, with the share of manufacturing exports increasing from 62 percent in 2013 to 72 percent in 2017.
The stable outlook on the debt rating reflects well-maintained risk and the likelihood that the debt rating will be unchanged in the near future. Moody\'s upgraded rating – following a similar upgrade by other international debt rating agencies – has improved investor perception and the Jokowi government\'s opportunity to obtain increasingly open funding for its massive infrastructure projects.
The issue is how to capitalize on the improved rating in improving economic growth and wealth. The better debt rating and investor perception do not automatically lead to a flood of investment inflows.
A number of global surveys rank Indonesia as a key destination for global investment. The 2017 Economist Corporate Network survey of 223 Asian business executives, for example, ranked Indonesia as the third best investment destination after China and India.
This has been the most significant improvement in the last five years. However, it has not been able to boost growth to a level sufficient enough for us to escape the low growth trap, create new employment and reduce the economic gap. Maintaining policy credibility and continuing with economic reforms is critical here.
Another thing is that, despite our ability to maintain risk levels, we must remain cautious, as several vulnerabilities exist. For example, foreigners still hold about 40 percent of government bonds, so there is a risk of economic shocks in the case of a sudden stop.
