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 ----------------------------------------------------------- 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 -----------------------------------------------------------