Fitch raises RI debt rating outlook on better finances

The Jakarta Post ,  Jakarta   |  Tue, 01/30/2007 3:59 PM

The Jakarta Post, Jakarta

Global rating agency Fitch Ratings has raised Indonesia's debt rating outlook from stable to positive on improvements in the country's finances, and the government's efforts to address investor concerns about corruption and bureaucratic obstacles.

The agency also affirmed Monday the country's foreign currency debt rating at BB-, which is three levels below investment grade.

""The revision to the outlook on Indonesia's sovereign ratings reflects the authorities' commitment to maintaining economic stability and fiscal discipline, as well as the government's stronger top-down policy of implementing the structural reform agenda aimed at improving the investment climate,"" said Ai Ling Ngiam, a director of the Singapore office of Fitch, in a statement.

According to Bloomberg data, another rating agency, Moody's Investors Service, has a stable outlook on its B1 rating for Indonesian debt -- the fourth-highest non-investment grade.

A rise in the rating outlook for Indonesia means the agency is more inclined to actually raise its rating -- another sign of international acknowledgment of the country's improving economy.

A rating upgrade would mean lower borrowing costs for the government, particularly important given that it plans to issue some US$1 billion in global bonds next March.

Indonesia has so far issued $4.5 billion in dollar-dominated bonds.

Fitch cited stable public finances and improving surveillance of broader fiscal risks as Indonesia's fundamental strengths, and forecast that the fiscal deficit this year would stay at a manageable 1.1 percent of GDP, while the government debt-to-GDP ratio would drop to around 38 percent -- levels last seen back in 1997.

Last year, the fiscal deficit and debt-to-GDP ratio stood at an estimated 0.9 percent and 42 percent respectively.

The country's strong fiscal footing is also supported by the external front, which has seen a strong build-up in the forex reserves position thanks to commodity price increases, rapid growth in exports and portfolio capital inflows.

Foreign reserves rose last year to $42.6 billion from a year earlier.

Fitch was also impressed by the government's progress in the fight against corruption. It said in the statement that the government's efforts to tackle corruption, and bureaucratic and regulatory hindrances, particularly in the area of taxation and customs, may slowly be paying off.

""A culture of fear of openly engaging in corruption has now emerged amid anticorruption investigations leading to high-profile prosecutions and asset recovery.""

Still, many risks remain.

To strengthen its position, Indonesia badly needs to ""accelerate efforts to build sustainable capital inflows in the form of foreign direct investment (FDI) as a preferred alternative to possibly volatile portfolio flows.""

Realized FDI last year was down by 32 percent to $5.98 billion.

""Export competitiveness will also need to be addressed in the near term with greater urgency placed on improving Indonesia's credit risk profile.

Copyright © 2008 The Jakarta Post - PT Bina Media Tenggara. All Rights Reserved.