Moody's raises RI outlook to positive

The Jakarta Post, Jakarta

Rating agency Moody's Investors Service has raised the outlook for Indonesia's foreign currency country ceilings for bonds and bank deposits to positive from stable, reflecting the country's improved relations with international lenders.

Its rating on Indonesia's foreign currency country ceiling for bonds remains at B3, meaning they still contain moderate risks.

While its rating of foreign currency country ceiling for Indonesian bank deposits at Caa1, shows a high risk of default.

But Indonesia's recent Paris Club deal that deferred payment of government foreign debts, and the better relationship with foreign lenders would improve the country's liquidity position in the coming two years, Moody's said as quoted by AFP on Thursday.

Creditors in the Paris Club allowed Indonesia to defer by at least 20 years debt payments of US$5.4 billion that otherwise were required to be paid by this fiscal year and the next fiscal year.

This improves Indonesia's liquidity, which means it can better serve payment of its other debts.

The state budget also depends on rescheduling massive debts to help contain its chronic deficit at 2.5 percent of gross domestic product, or roughly at Rp 42 trillion (about $4.5 billion).

The rest is financed by a mixture of proceeds from state asset sales and new loans from international creditors such the World Bank or the Asian Development Bank.

A Paris Club deal however would have been unlikely were it not for Indonesia's ability to patch up its strained relationship last year with the International Monetary Fund (IMF).

Last August's first lending deal with the IMF after an eight month suspension, reinvigorated creditors' faith in the country.

Since then, the government has worked its way up the confidence scale of foreign lenders and investors.

New bilateral loans worth $3.14 billion from the Consultative Group on Indonesia in November, and another loan agreement with the IMF in December extended the positive mood.

These deals and the recent Paris Club agreement were built on signs of slow yet consistent economic reforms progress.

Moody's said continued reforms were necessary to lift Indonesia's economic performance and improve investor confidence.

Any upgrades in its rating, Moody's said, relied on continued political stability, progress in selling off assets under the Indonesian Bank Restructuring Agency (IBRA), fiscal performance, and the government meeting targets under the IMF reforms program.

Economists have also urged the government to do more on legal reforms to lay ground for a more sustainable confidence level.

Still, foreign investors' appetites for Indonesian bonds appear to have returned, with several local firms reporting successful bond issuances.