Japanese agency affirms RI investment grade

The Japan Credit Rating Agency (JCRA) affirmed on Wednesday Indonesia’s sovereign credit rating as investment grade, indicating confidence in the country’s economy amid global economic uncertainties, senior officials said.

The JCRA was the first major rating agency to rate Indonesia’s debt papers as investment grade in July last year as it upgraded the rating to BBB-with a stable outlook.

Top global rating agencies Standard & Poor’s (S&P), Fitch Ratings and Moody’s Investors Service upgraded the country’s credit rating to one notch below investment grade earlier this year with possibilities for a further upgrade in the near future.

Hopes of an investment-grade credit rating for Indonesia emerged at a time when the same rating agencies cut the sovereign debt rating for developed nations such as Japan, several European countries and even the United States.

An investment-grade credit rating shows a nation’s fiscal strength as it indicates a nation’s ability to buy back debt papers it has issued.

Several conservative fund managers like pension funds in developed countries normally require their assets to be invested in investment-grade rated securities. Therefore, analysts have said that an investment grade from top rating agencies would boost financial asset prices in Indonesia as capital inflows would surge.

The JCRA said in a press statement that the investment-grade affirmation reflected Indonesia’s sustainable economic growth outlook underpinned by solid domestic demand, alleviated public debt burden brought by prudent fiscal management and reinforced resilience to external shocks stemming from accumulated foreign exchange reserves and overseas-debt management capacity.

In the first half of this year, Indonesia’s economy grew 6.5 percent with lower inflation at 4.61 percent, while the government debt to gross domestic product (GDP) ratio is also low at 26 percent.

The JCRA main sovereign analysts for Indonesia, Yoshihiko Tamura and Sakura Yamamoto, said that Indonesia would be able to sustain rapid economic growth while maintaining macroeconomic stability and fiscal health in the years to come.

“The affirmation of investment grade represents a level of confidence in Indonesia’s economy which shows encouraging performance amid an uncertain situation in the global economy,” Bank Indonesia Governor Darmin Nasution said. “This confidence is a recognition of our discipline and prudent macroeconomic-policy implementation.”

Darmin expected the Japanese rating agency’s outlook to help increase global optimism in Indonesia’s economy.

“Indonesia deserves an investment grade,” Coordinating Minister for the Economy Hatta Rajasa said.

“Alhough several rating agencies have not yet rated Indonesia as investment grade, we have been treated as an investment-grade [nation],” he added, citing lowering government bond yields as an example of “investment-grade treatment”.

Central bankers and government officials are expecting an investment grade from either S&P, Fitch or Moody’s by at least early next year.

Bank Mandiri research on the impact of an investment-grade rating upgrade in over 30 countries shows that portfolio investors in the stock and debt markets usually react before the actual upgrade. “Afterward, direct investment will surge as investors better trust the country,” the bank’s chief economist Destry Damayanti said.