Notes on S&P Global Ratings' Latest Decision

Note: This article is the author’s personal opinion and does not reflect the views of the CNBC Indonesia editorial team.

In a world still overshadowed by geopolitical uncertainty, economic slowdown and high global funding costs, maintaining trust is often far more difficult than earning it.

For that reason, the decision by S&P Global Ratings to once again affirm Indonesia’s debt rating at BBB with a stable outlook should be seen as good news. Not because Indonesia received an upgrade, but because the international community has again affirmed that the foundations of the Indonesian economy remain strong and credible.

For some members of the public, the term sovereign credit rating may sound technical. Yet its meaning is fairly simple. The rating is like a financial health report card for a country, used by global investors to measure the level of risk.

The higher the rating, the greater the confidence that the country is able to meet its financial obligations on time. That confidence is then translated into investment, lower borrowing costs and growing confidence among businesses to expand their economic activities.

Under the S&P system, the highest rating is AAA, followed by AA, A and BBB, all of which remain within the investment grade category. Below BBB-, ratings enter the speculative (non-investment grade) category, which carries a higher level of risk.

Indonesia’s current position is at BBB, two notches above the lower boundary of investment grade. Meanwhile, Indonesia’s short-term rating remains at A-2, indicating that the government’s ability to meet short-term financing obligations is still in a strong category. In other words, Indonesia has not yet moved up a class, but neither has it lost the trust built up over many years.

This is the essence of S&P’s decision. Amid many countries facing fiscal pressure, surging debt and declining economic prospects, Indonesia has succeeded in maintaining its position as a country regarded as stable. Trust like this does not simply appear. It is built through policy consistency, fiscal discipline, macroeconomic stability and the ability to sustain growth momentum.

S&P’s report reflects this. Indonesia’s economic growth outlook remains estimated at around 5 per cent over the coming years. Fiscal discipline remains one of the main strengths, supported by a government debt ratio that is relatively low compared with many other developing countries.

At the same time, various measures to strengthen the governance of state revenue and the natural resources sector are considered to have the potential to improve Indonesia’s fiscal and external position in a sustainable manner.

For the business world, this decision carries far greater significance than merely maintaining a number. The sovereign rating is one of the main references for global investors in making investment decisions.

When a country’s risk is seen as contained, the cost of capital becomes more competitive, access to financing opens up further, and long-term investment interest rises accordingly. Ultimately, these benefits will be felt across the entire economic ecosystem, from large corporations to small and medium enterprises, and to the wider public who gain new employment opportunities.

However, this affirmation must not make us complacent. Indeed, this is precisely where the real work begins. Indonesia remains at BBB, while countries with stronger economic competitiveness are already in the A, AA and even AAA groups.

The journey towards those levels certainly cannot be achieved in a short time. It requires consistent reform, legal certainty, an increasingly efficient bureaucracy and continuously rising economic productivity.

S&P itself has given a clear enough signal about that direction. The opportunity for an upgrade will open wider if Indonesia can strengthen state revenues on a sustainable basis, keep the fiscal deficit at increasingly healthy levels, reduce funding costs and fortify its external position through stronger foreign exchange reserves and value-added exports.

This means that the reform agenda undertaken so far is not only important for economic growth, but is also a prerequisite for elevating Indonesia to the next level.

For that reason, this momentum should be used to accelerate economic transformation. Downstreaming must continue to deliver tangible added value for national industry. Bureaucratic reform must increasingly provide certainty and ease of doing business.

Natural resource governance needs to be continuously strengthened so that it can deliver greater economic benefits to the state without diminishing investment competitiveness. At the same time, the business community also has a responsibility to raise productivity, expand investment, drive innovation and create quality jobs.

Ultimately, what is being maintained is not merely a BBB rating, but trust. For no investment comes without trust, no growth is sustainable without credibility, and no country can move up a class if it loses the confidence of the market.

Indonesia has succeeded in building that foundation. The next challenge is no longer holding one’s position, but transforming that trust into a leap forward. With a demographic bonus, a large domestic market, abundant natural resources and a growing entrepreneurial spirit, Indonesia has all the capital needed to move towards the group of countries with higher-quality economies.

Because in the end, a rating upgrade is not the ultimate goal. It is a consequence of consistent policy, sustained reform and the courage of all elements of the nation to keep raising competitiveness. When these three things move in tandem, moving up a class is no longer mere optimism, but something realistic to achieve.