Indonesia’s sovereign credit ratings have been raised by Standard & Poor’s to two levels below investment grade as the economy managed to book a high growth amid last year’s global economic downturn.
The upgrade is good news for the government as it expects to reach investment grade within one year, Finance Minister Sri Mulyani Indrawati said earlier this week.
Standard & Poor’s raised Indonesia’s long-term foreign currency ratings to BB from BB-, the ratings agency said in a statement Friday. The outlook is positive.
Standard & Poor’s also affirmed Indonesia’s BB+ long-term local currency rating and B short-term foreign and local currency ratings. The outlook on local currency rating remains positive.
“The rating upgrade reflects steadily improving debt metrics and growing foreign currency reserves with continued cautious fiscal management,” said Standard & Poor’s analyst Agost Benard.
Indonesia’s economy managed to grow by 4.5 percent in 2009 amid a decline of global demand to the country’s exports, the Central Statistics Agency said.
The central bank estimates the economy to expand between 5.5 percent and 6 percent this year, and further accelerate to 6 percent to 6.5 percent in 2011, on the back of stronger domestic and global economic recovery.
Fitch Ratings on Jan. 25 upgraded Indonesia’s long-term foreign and local currency ratings to BB+ from BB, one level below investment grade. Moody’s Investors Service on Jan. 21 maintained its Ba2 rating for Indonesia, two levels below investment grade.
Standard & Poor’s said Indonesia’s ratings remain constrained by its relatively high external debt — of a projected 58 percent of current account receipts this year — and a low-income economy with per capita GDP of US$2,300, which is still less than half the median for the BB rating category.
Structural and institutional impediments to higher economic growth remain additional rating constraints, it added.
Anggito Abimanyu, head of the Fiscal Policy Office at the ministry, said earlier Indonesia’s hurdles to reach investment grade include the current poor investment climate, the lacking coordination of central and local governments and the risks related to state-run enterprises. He said the government would strive to address the hurdles.
Citi analyst Johanna Chua said the upgrade did not come as a surprise. “In our recent Indonesia bond outlook report, we said Indonesia can surpass Turkey’s ratings to reach high BB rating this year on both relatively strong and improving fiscal and external liquidity positions. We also think investment grade is expected by 2011 or 2012,” she said.
She added that Moody’s should follow suit with a positive outlook.
BI Deputy Governor Hartadi A. Sarwono said the government would maintain this positive momentum to reach investment grade by keeping strong macroeconomic fundamentals and prudent fiscal policies.
“With maintained strong economic fundamentals, stronger external liquidity, government debt ratio that keeps reducing in phases, supported by prudent fiscal policies and smooth structural reform, they are expected to support a better economic growth in the next one year to maintain a positive momentum for the next rating upgrade in reaching an investment grade target,” he said.
