JAKARTA: Indonesia successfully has its sovereign debt rating upgraded one notch to investment grade. Fitch Ratings raised Indonesia’s sovereign debt rating from BB+ to BBB- after 14 years of waiting.
Director of Fitch Rating for Asia Pacific Philip McNicholas said that the international rating agency upgraded Long-Term Foreign- and Local-Currency Issuer Default Ratings with stable outlook. Wheres, the short-term Long-Term Foreign- and Local-Currency Issuer Default Ratings were upgraded to F3.
“The rating upgrade reflects the strong economic growth, and lower debt to GDP ratio. Besides strengthening liquidity, Indonesia has run prudent macroeconomic framework,” he said in a press statement.
Following the rating upgrade, Fitch projects the gross domestic product (GDP) will grow at average of more than 6% annually until 2013although global economy is less conducive.
The ratings agency perceives Indonesia’s strong growth is sustained by domestic economy and less depending on external loans. Yet, the growth prospect still needs to be tested against external shocks.
On the other hand, Fitch highlighted the weak structural issues, such as low income per capita, that is US$3,600. This figure is still far below BBB rating standards that require average income US$9,800 per capita. Yet, the relatively strong fundamentals of Indonesian structure in some categories have raised the rating to BBB-.
“Problems realted to climate change, bad infrastructure and corruption must be settled.”
Coordinating Minister for Economic Affairs Hatta Rajasa saw the rating upgrade has reflected the prudent fiscal management and macroeconomic policy of the government. He in fact did not show any worries on possible massive capital inflow after the rating upgrade as there are abundant investment opportunities to keep the investors to stay.
Ryan Kiryanto, Head of Economist of PT Bank Negara Indonesia Tbk, said that the upgrade to investment grade will build stronger confidence at the market to invest in Indonesia. Still, more capital is expected to flow into real and infrastructure sectors.
Ryan said the upgrade will benefit the financial sector as the country will be the target of foreign capital in terms of portfolio and foreign direct investment (FDI).
“Yields of Indonesian soreveign and corporate debts will come down as risks are becoming lower. This is the time for the government and corporations to issue bonds,” he added.
Similarly, I Made Adi Saputra, Analyst at PT Nusantara Capital Securities, also sees the benefit of the rating upgrade to sovereign debts. Foreign investors, according to him, become more interested in Indonesia’s bond market.
High demand will lead to good bargaining power for the government to determine lower yields.
Rahmat Waluyanto, Director General of Debt Management at Ministry of Finance, said that Indonesia is eligible for investment grade with its low debt to GDP ratio, moderate inflation rate and low budget deficit. Adding to these, Indonesia’s yields and credit default swap of sovereign bonds confirm the eligibility. “Global sukuk of Indonesia offers 4% yield, and 5-year CDS is at 150 basis points.”
Governor of Bank Indonesia Darmin Nasution agrees if the rating upgrade relates to success of Indonesia’s fiscal and monetery regulators to maintain macroeconomic stability and high growth.
President Director of PT Bank Mandiri Tbk Zulkifli Zaini welcomed the rating upgrade as a driver for more foreign capital to flow into national financial system, thus helping banks cut the cost of fund. (NOM)
Indonesia wins back investment grade – Bisnis.com.
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