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Moody's upgrades Indonesia's sovereign rating to Baa3; outlook stable

Posted on January 19, 2012 at 11:00 PM Comments comments ()
Global Credit Research - 18 Jan 2012
Singapore, January 18, 2012 -- Moody's Investors Service has today upgraded the Government of Indonesia's foreign and local currency bond ratings to Baa3 from Ba1.
The ratings outlook is stable.
The key drivers of this decision are:
1. Moody's anticipation that government financial metrics will remain in line with Baa peers.
2. The demonstrated resilience of Indonesia's economic growth to large external shocks.
3. The presence of policy buffers and tools that address financial vulnerabilities.
4. A healthier banking system capable of withstanding stress.
Indonesia's cyclical resilience to large external shocks points to sustainably high trend growth over the medium term. A more favorable assessment of Indonesia's economic strength is underpinned by gains in investment spending, improved prospects for infrastructure development following key policy reforms, and a well-managed financial system.
In addition, robust growth has been accompanied by the continued health of its external payments position, supported by increasingly large flows of foreign direct investment, while inflationary expectations are becoming better anchored at a more stable and historically lower level.
Prudent fiscal management has contained budget deficits at very low levels and has reduced the government's debt burden as a share of GDP.
As a result, Indonesia's fiscal ratios now surpass many of its higher-rated peers, providing more fiscal headroom to respond to economic shocks. It has also reduced risk perceptions, enabling the government to access international funding markets even during periods of heightened risk aversion.
Policy buffers, including the central bank's large stock of foreign exchange reserves and the government's bond stabilization framework, have been recently deployed and remain ample as significant lines of defense against destabilizing capital outflows. In addition, the banking sector does not pose immediate or significant contingent risks to the government's balance sheet, thereby raising fiscal headroom and added scope to policy responsiveness to future shocks.
Issues related to governance and a fundamental assessment of institutional strength remain a concern in regard to a further improvement in Indonesia's credit fundamentals. In addition, continued progress on targeted subsidy reform would be credit positive.
The stable outlook also reflects the expectation of continued policy flexibility and the adept management of risks stemming from global financial market volatility, based in turn on the tepid recovery in the US and the ongoing sovereign debt stress apparent in the euro zone.
Indonesia's long-term foreign currency (FC) bond ceiling was also raised to Baa2 from Baa3, while the long-term FC deposit ceiling was aligned with the government bond rating at Baa3. In addition, the short-term FC bond and deposit ceilings were upgraded to P-3. The outlook for these ceilings is stable. These ceilings act as a cap on ratings that can be assigned to the FC obligations of other entities domiciled in the country.
The local currency bond and deposit ceilings were also upgraded to A3 from Baa1.


Posted on December 11, 2011 at 12:29 AM Comments comments ()

Out of a population of 234 million, more than 32 million Indonesians currently live below the poverty line and approximately half of all households remain clustered around the national poverty line set at 200,262 rupiahs per month ($22). Employment growth has been slower than population growth. Public services remain inadequate by middle income standards. Indonesia is also doing poorly in a number of health and infrastructure related indicators, and as a result, may fail to reach some Millennium Development Goals (MDG) targets. Data from 2009 shows that Indonesia still suffers 307 deaths for every 100,000 live births, while the MDG aims to reduce this to 105 deaths by 2015.  Maternal mortality remains high, and may be an MDG target that will not be met. Also, despite recent progress, access to improved sanitation facilities currently stands at 68 percent of the population, which remains significantly short of the MDG target of 86 percent. There was a slight drop in Indonesia’s ranking in the “2011 Doing Business” report from 115th in 2010 to 121st in 2011. Significant challenges remain, however, with Indonesian businesses identifying labor, infrastructure and general regulatory reforms as critical to increased investment. Despite these conditions, Indonesia continues to post significant economic growth. The national economy is expected to grow by 6. 4 percent in 2011 and increase to 6.7 percent in 2012. The country’s gross national income per capita has steadily to rise from $2,200 in the year 2000 to $3,720 in 2009. In terms of macroeconomic stability, Indonesia has managed to fulfill many of its fiscal targets, including a significant drop in Debt-to-GDP ratio from 61 percent in 2003 to 27.5 percent in 2009. Meanwhile, the budget deficit is projected to be as little as 0.4 percent of GDP in 2011. Indonesia has formulated a long-term development plan which spans from 2005 to 2025. It is segmented into 5-year medium-term plans, each with different development priorities. The current medium-term development plan covering 2009-2014 is the second phase and focuses on:

  • promoting quality of human resources
  • development of science and technology
  • strengthening economic competitiveness.

( Source : )