Moody's upgrades Indonesia's rating
Moody's upgrades Indonesia's rating
The Jakarta Post, Jakarta
Moody's Investors Service, an international rating agency, has
upgraded Indonesia's sovereign rating by one notch, in light of
the country's stronger external financial footing and falling
government debts.
The country's rating was raised from B3 to B2 on Tuesday in
what economists called "a vote of confidence" in the government's
ability to service its foreign debts next year, after its
borrowing program with the International Monetary Fund (IMF) ends
this year.
The new rating is still five levels below investment grade.
Nevertheless, the upgrade should help ease investors' fear
that the government would stick to its economic reform programs
without the IMF's presence, Standard Chartered economist Fauzi
Ichsan said.
"It's perfect timing. When the decision (on exiting the IMF
program) was made, many doubted the government's commitment to
economic reform, (so) the upgrade should reduce such concerns,"
Fauzi told The Jakarta Post. He added that it was also an
indication that the government was on the right track to shaping
up the economy.
Moody's says Indonesia's plan to finance its exit from the IMF
program appears achievable in 2004, "provided there are no major
shocks to confidence that could affect private capital flows".
Another rating agency, Standard and Poor's, had made a similar
move in May.
The rupiah was the first to benefit from the news.
The local currency closed on Tuesday at Rp 8,410 per U.S.
dollar, stronger than 8,420 the day before. The rupiah even
reached an intraday high of 8,385 before heavy dollar buying
pushed it down, dealers said.
Dealers also attributed a 0.1 percent rise in the Jakarta
Composite Index to Moody's upgrade. The stock index closed at
597.65, down from an intraday high of 601.19.
"The rating improvement should not only help the rupiah, but
also help in raising investors' interest in plans to sell local
assets, including Bank Internasional Indonesia (BII)," Fauzi
said.
A 71 percent stake in BII is up for sale in efforts to
restructure the country's banking system.
Minister of Finance Boediono said the upgrade would help boost
the interest of foreign investors to buy the planned $400 million
sovereign global bond next year, the first bond issue since the
economic crisis of 1997.
Moody's also said in a statement that Indonesia had been
making progress in strengthening its external financial position,
as evident in its rising foreign reserves.
It said the increasing foreign reserves, which now stand at
US$33 billion, had certainly helped reduce the country's
vulnerability to external shocks.
Moody's also pointed to the fairly steep decline in the
government debt ratio, which is estimated to fall to 69 percent
of the gross domestic product by year's end, from around 100
percent in 2000. This, in turn, should reduce the risk for
investors in buying government debt.
However, while it predicated a stable outlook with the new
ratings, Moody's reiterated that the country would still be
facing uncertainties in times to come.
"Uncertainty surrounding the outcome of the 2004 elections and
the threat of renewed terrorism are among the most important
risks to the outlook.
"Nonetheless, these risks do not appear incompatible with a B2
rating," said Moody's
"Eye box"
Upgraded Moody's Ratings
No. Category Old New
Rating Rating
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1. Foreign currency country ceiling for B3 B2
bonds; foreign currency rating for
govt bonds
2. Foreign currency country ceiling Caa1 B3
for bank deposits
3. Domestic issuer rating of the govt B3 B2
4. Long-term bank deposit country ceiling Caa1 B3
ratings of 8 banks: Bank Danamon
Indonesia, Bank Internasional Indonesia
(BII), Bank Mandiri, Bank Negara
Indonesia (BNI), Bank Permata, Bank
Rakyat Indonesia (BRI), Bank Tabungan
Negara (BTN) and Pan Indonesia Bank
5. Senior debt ratings: Bank Mandiri & BNI B3 B2
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