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RI'€™s sovereign credit rating '€˜stable'€™ despite weak economy

Malaysia-based rating agency RAM Ratings has rated the country’s sovereign credit “stable”, reflecting the government’s ability to manage its debts and promising economic growth, despite the country’s slowing economy in the first half of this year

The Jakarta Post
Jakarta
Thu, August 20, 2015

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RI'€™s sovereign credit rating '€˜stable'€™ despite weak economy

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alaysia-based rating agency RAM Ratings has rated the country'€™s sovereign credit '€œstable'€, reflecting the government'€™s ability to manage its debts and promising economic growth, despite the country'€™s slowing economy in the first half of this year.

RAM Ratings graded Indonesia BBB2(pi)/stable globally and AA3(pi)/stable on an ASEAN scale, which was the fourth highest in the region after Singapore, Malaysia and Thailand.

The rating showed a low government debt burden, profitable growth prospects and wise fiscal management, said Denise Thean, the deputy CEO of RAM Ratings, in South Jakarta on Wednesday.

She highlighted the government'€™s conservative policies in managing its debts that led to a manageable fiscal deficit and lower debts.

'€œThe deficit tends to exceed the 1.9 percent target to 2.2 percent, but it is still within the 3 percent limit of the gross domestic product [GDP] value. The government debts declined from almost 50 percent in 2005 to only around 20 percent last year,'€ she said.

It was also noted that several sectors continued to lure investors.

The Indonesian banking business is still considered the most profitable in ASEAN with an average 4.2 percent net interest margin (NIM). In Malaysia, for example, NIM is only 2.5 percent.

The government'€™s plan to build power plants to produce a total of 35,000 MW is also viewed as being able to attract US$132.2 billion in investment, the report said.

The agency also urged the government to execute its infrastructure projects to cushion the risks of commodity markets.

The government released on Tuesday official data on the trade balance, which booked a $1.3 billion trade surplus, the widest since December 2013. However, the surplus was caused by a decline in imports rather than a rise in exports.

According to the Central Statistics Agency (BPS), exports dropped 19.2 percent to $11.40 billion year-on-year in July, while imports dropped 28.44 percent to $10.07 billion in the same period.

Thean said that challenges faced by Indonesia were its high-dependence on commodities, which accounted for about 60 percent of exports, bureaucratic red tape, low income per capita and external economic shocks.

'€œHowever, the country has strong fundamentals and is still resilient for investors, as shown by our sovereign credit rating,'€ she said, pointing out the country'€™s economy size.

With a GDP reaching almost $900 billion in value and a population of more than 250 million, in the country'€™s economy is predicted to expand economic growth 4 to 5 percent this year, she added.

The economy slowed to a six-year low of 4.6 percent in the second quarter of this year, continuing its sluggish move from the 4.7 percent recorded in the first quarter. Thean emphasized that the slowing economy was not unique to Indonesia but was experienced across the region.

'€œThe key to sustainability is speeding up infrastructure project construction,'€ she said, adding that the government'€™s policies that put stability before growth played a part in securing the economy.

Economists have called for President Joko '€œJokowi'€ Widodo to prioritize stability over growth, but instead the President laid out what he called an '€œexpansive'€ budget over the weekend that he said would drive up growth to 5.5 percent and strengthen the rupiah to 13,400 per US dollar next year.

The robust economic expansion would be underpinned by investment, which the government assumed would grow 7.3 percent throughout 2015. (prm)

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