In its latest report published Wednesday, the global ratings agency said Indonesia had managed to improve its policy and institutional settings including a better fiscal framework, credible monetary policy and buoyant economic growth.

Responding to S&P, Bank Indonesia governor Agus Martowardojo said the central bank would keep a number of measures in place to strengthen resiliency, including issuance of a regulation on the prudential principle in the management of external debt for non-bank corporations.

In addition, BI adopted a more flexible exchange rate in line with its fundamental values, while maintaining adequate foreign exchange reserves and provision as the second line of defense at the bilateral, regional and global levels.

"Efforts to improve fiscal revenue are continuously taken by the government amid infrastructure financing needs while taking into consideration fiscal prudence and the impact on macroeconomic and financial stability," Agus said  in Jakarta on Thursday.

He also pointed out the government’s measures on structural reforms through a series of policy packages to stimulate economic growth in a bid to achieve healthy, sustainable and inclusive economic growth.

These structural reforms are expected to have a positive impact on Indonesia’s economy in the medium and long term. "Indonesia is seeing more favorable economic growth than peer countries," Agus added.

According to S&P, the improvement in the fiscal framework should improve the quality of public expenditure and lead to more predictable fiscal outcomes. "However, fiscal performance has not improved in tandem for cyclical and structural reasons," the report said.

S&P highlighted that the rating, slightly below investment grade rating of BBB, could be upgraded if improvements in institutional settings, particularly the fiscal framework, delivered better-quality spending, a declining deficit, moderate government debt and limited fiscal liabilities.

On the opposite end, Indonesia's outlook may be downgraded to stable if problems in the banking or public enterprise sector are left unaddressed, reform momentum slows or stalls, fiscal metrics do not improve or the trend in weakening external liquidity does not abate.

S&P had previously improved the outlook of Indonesia from stable to positive and affirmed the Sovereign Credit Rating  at BB+ on May 21, 2015.

Earlier this month, President Joko "Jokowi" Widodo asked his Cabinet to focus not only on the ease of doing business, but also to strive for investment rating upgrade to improve the perception of Indonesia in the global economy.

"We must get the investment grade rating to expand Indonesia's access to international financial markets. I want to see several measures on economic, fiscal and monetary policies so that we can attain an investment grade," he said in a limited meeting on May 9.

Other global rating agencies, Moody's Investors Service and Fitch Ratings, have given Indonesia an investment grade rating. Moody’s maintained the credit rating at Baa3 with a stable outlook in January while Fitch gave Indonesia a BBB- rating with a stable outlook in January 2012.

It was the first investment grade rating given by Fitch after 14 years. (ags)

Contributor: Anton Hermansyah

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