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View all search resultsEconomic fundamentals solid, govt insists, after Moody’s lowered outlook
Economists interpret the rating agency’s latest assessment as a serious corrective signal, noting that a downgrade in Indonesia’s credit rating could sharply raise borrowing costs and pile pressure on the rupiah.
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Signage is seen outside the Moody's Corporation headquarters in Manhattan, New York, the United States, on Nov. 12, 2021. (Reuters/ANDREW KELLY)
T
he government has sought to reassure markets after Moody’s Investors Service downgraded Indonesia’s credit rating outlook from “stable” to “negative”, noting that the country’s economic fundamentals remain strong despite growing concerns over governance risks.
“Over the past year, reduced predictability and coherence in the policy making process, alongside less effective policy communication, have raised risks to Indonesia's policy credibility among investors, as reflected in increased equity and foreign-exchange market volatility,” the credit rating agency said in its latest assessment, released on Thursday.
The press release from Moody’s also notes “weaker policy cohesion and credibility,” which, if sustained, “could point to institutional strength lower than currently assessed, and undermine economic and fiscal strength through reduced investment attractiveness and higher borrowing costs.”
Moody’s affirmed Indonesia’s long-term issuer ratings at Baa2, reflecting its expectation of “continued resilience in economic strength” and a monetary policy seen “to continue supporting price stability”.
Yet, the downward revision in the outlook triggered a negative market reaction, with the Indonesia Stock Exchange (IDX) Composite index opening at 7,945 points and sliding 2.08 percent to close at 7,935 on Friday.
Moody’s noted “emerging weaknesses in policy planning and communication, with implications for policy credibility” and elaborated on policy uncertainty, specifically around state asset fund Danantara.
Furthermore, it warned of “risks to domestic political stability” from “rising public dissatisfaction” over income and employment prospects.
