Indonesia Regains Investment Grade as Fitch Raises Rating
Dec. 15 (Bloomberg) — Indonesia regained investment grade rating for its sovereign debt at Fitch Ratings after 14 years, as Southeast Asia’s largest economy withstands faltering global growth and contains borrowings.
The country’s long-term foreign and local currency debt was raised to BBB- from BB+, Fitch said in a statement today. The outlook on both ratings is stable. Indonesia lost the investment grade rating in December 1997, during the Asian financial crisis. The rating puts the nation on the same level as India.
“The upgrades reflect the country’s strong and resilient economic growth, low and declining public-debt ratios, strengthened external liquidity and a prudent overall macro policy framework,” Philip McNicholas, director in Fitch’s Asia- Pacific Sovereign Ratings group, said in the statement.
Indonesia’s standing with rating companies has improved as President Susilo Bambang Yudhoyono targets growth of as much as 6.6 percent on average through the remainder of his term ending in 2014, pledging to spur investment and reduce the budget deficit. The country’s economy, which avoided the contraction that neighbors Singapore, Malaysia and Thailand suffered during the 2009 global slump, has expanded more than 6 percent this year even as Europe’s debt crisis threatens Asian exports.
“This doesn’t give us immunity,” Helmi Arman, an economist at Citigroup Inc. in Jakarta, said after Fitch released the announcement. “But they’re going to have a broader investor base in the market because of this move. It will certainly improve our resilience.”
The rupiah has outperformed every Asian currency except the Japanese yen, Chinese yuan and the Hong Kong dollar this year, and Indonesia’s benchmark stock index is the fourth-best performer in the region. The currency slid 0.04 percent to 9,090 a dollar as of 4:42 p.m. Jakarta time today, according to prices from local banks compiled by Bloomberg.
Government bonds gained earlier today. The yield on the 8.25 percent note due July 2021 declined four basis points, or 0.04 percentage point, to 6.25 percent, according to midday prices from the Inter-Dealer Market Association. It reached 6.06 percent on Dec. 6, the lowest since the securities were sold in July last year.
Demand for Indonesian bonds will increase following Fitch’s move, Rahmat Waluyanto, director general at the finance ministry’s debt management office, said in Jakarta today. Capital inflow, especially foreign direct investment, will likely increase, he said in a mobile-phone text message.
‘Waited a Long Time’
“We’ve waited for this upgrade for a long time, in line with our effort to implement consistent and careful economic policies,” Hartadi Sarwono, deputy governor at the central bank, said in a mobile-phone text message in Jakarta today. “Indonesia’s economic prospects will be better with lower risk and borrowing costs, supporting financing of economic activities.”
Moody’s Investors Service raised the nation’s rating in January to Ba1. In April, Standard & Poor’s increased Indonesia’s long-term foreign-currency rating one level to BB+ from BB, with a positive outlook. The ratings are one level below investment grade.
Indonesia’s performance contrasts with that of European nations, whose borrowing costs have soared as the debt crisis deepened.
European Union leaders agreed at a Dec. 8-9 summit in Brussels to tighter control of tax and spending by governments that overstep the bloc’s deficit limit of 3 percent of gross domestic product. They also pledged a faster start to a 500 billion-euro ($659 billion) rescue fund. Standard & Poor’s and Moody’s Investors Service are reviewing the agreement and its implications for credit ratings on euro countries.
Fitch projects Indonesia’s GDP growth will average more than 6 percent per annum over the period to 2013, it said in today’s statement.
“Indonesia’s domestically-oriented economy and success in delivering relatively strong economic growth without the creation of external imbalances, or a reliance on short-term external financing suggests economic growth prospects should prove resilient to external shocks, as was the case in 2008,” Fitch said. “Low public debt and positive real interest rates give the authorities policy flexibility to respond to any slowdown.”
A great news for Indonesia, something that many of us has been waiting for, and apparently, Christmas came early for Indonesia. The government’s effort in regaining the Investment grade for Indonesia has finally shows the result, it is as being stated in the article above, the country’s grade rating was upgraded from BBB- to BB+. This definitely boost more confidents of the investors to invest in Indonesia, and this early Christmas present will definitely makes 2012 more interesting for Indonesia. What do you see in Indonesia in 2012? Will you see a jump in FDI to the country? What will be the direct impact of the increase in credit rating for the country’s economy condition? If you think this is the best time to invest in Indonesia, what kind of investment are you looking at?
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