Fitch upgrades RI's sovereign rating
The Jakarta Post, Jakarta
International rating agency Fitch Ratings said on Thursday it had upgraded Indonesia's currency rating by one notch, a move that could help improve investor confidence ahead of the government's international bond offering next year.
Fitch upgraded the long-term foreign currency rating to B+ from B with a stable outlook, citing improving stability in the country's macroeconomy and declining trends in the government's debt level to around 70 percent of gross domestic product (GDP) from 100 percent of GDP in 2000.
"The upgrade of the sovereign ratings primarily reflects sustained improvements in the public finances that compare favorably with other similarly rated countries such as Brazil and Turkey," Fitch said.
It said that although the country's economic growth of around 4 percent was still below the 7 percent of the pre-crisis boom period, the economy had displayed remarkable resilience against a host of shocks including terror attacks, SARS and the Iraq war.
Despite the upgrade, the country's rating remains below investment grade. But the rating upgrade could be seen as a vote of confidence in the country's economy.
"This (the rating upgrade) is positive news because this means they (international rating agencies) are not saying bad things about our economy," Citibank economist Anton Gunawan told The Jakarta Post.
"The trend ahead will continue to improve if no significant (negative) development occurs," he added.
A few months ago, rival rating service, Standard & Poor's (S&P) had also raised its long-term foreign and local currency ratings for Indonesia by one notch to B from B- and to B+ from B, respectively. The upgrade came around a week after Moody's Investor Services raised the sovereign rating one notch from B3 to B2. Indonesia enjoyed an investment grade rating of BBB from S&P during the pre-crisis period, but various problems affecting investment here have made it very difficult to return to that level.
Supporting views from international rating agencies will be crucial for the government which is planning to issue around US$400 million in international bonds in the first quarter of next year in a bid to help raise funds to finance the state budget deficit as the country will no longer be allowed to reschedule debts from the Paris Club of creditor nations after the IMF's existing program expires later this year.
Although the size of the bond offering is relatively small, it is hoped that it can provide some crucial momentum for the economy as it would be the first international bond issue since the 1997 regional financial crisis hit the country.
During an international roadshow to Singapore and Hong Kong earlier this week, officials of the finance ministry and Bank Indonesia met with the above rating agencies and institutional investors to drum up support for the bond plan.
According to Bank Indonesia Governor Burhanuddin Abdullah, investors were encouraged by improving stability in the country's economy, and suggested that the size of the bond issue should be increased to around $1 billion.
But he said that it would be up to the Ministry of Finance to decide the size of the bond issue, and that will depend on the needs of the state budget.