RI has good chance of rating upgraded

Urip Hudiono, The Jakarta Post, Jakarta

Indonesia can expect another upgrade in its credit rating on the back of growing investor confidence in new government's ability to deliver further political and economic stability, global rating agency Standard & Poor's (S&P) says.

The government must, however, continue its efforts to improve the nation's investment climate by fighting corruption in business, politics and the courts, as any slowing in the reforms could reverse the favorable sentiment, the agency warned.

"There is a very good chance that Indonesia's current rating -- with its positive outlook -- will be upgraded," S&P sovereign and international public finance ratings director for Asia and the Pacific Takahira Ogawa said on Thursday.

"Statistically speaking, 70 percent of ratings attached with a positive outlook are eventually raised."

Market investors are in general showing positive sentiment toward the government's recent moves to ensure economic stability and steady growth.

"If we look at Indonesia's debt-to-gross domestic product ratio, then it has improved -- down to 58 percent, the government said -- while the country's current account surplus is also still there," Ogawa said.

"The government, furthermore, has repeatedly expressed its commitment to fight corruption, boost foreign direct investment, and stick to fiscal discipline."

S&P sovereign ratings group director Lisa M. Schineller, meanwhile, said that Indonesia, with its diverse economic resources ranging from agriculture, manufacturing, and oil and mining, had the potential to grow by 5.5 percent as projected by the government.

Good fiscal management and declining debt, were the reasons S&P gave in December when it raised Indonesia's long-term foreign currency credit rating one step to a B+ from a B and upgraded the country's long-term rupiah debt rating two levels to BB from a B+.

Both ratings were credited with a positive outlook.

An S&P "BB" rating means that a country is less vulnerable yet still faces uncertainties from adverse business and economic conditions in its capacity to meet financial commitments.

While the two ratings are respectively five and four levels below a more dependable "A" investment grade, an improved rating nevertheless reduces a country's investment risks, allowing its government to borrow funds at cheaper rates.

Ogawa said one of the main obstacles that could frustrate the government from accomplishing its programs was the existing ineffective and inefficient bureaucracy.

Another issue was the recent increase of inflation in the country, which required the central bank quickly apply foreign currency policies.

"The central bank's policies are very important, as well as how investors interpret the policies," he said. "If BI is too slow with its policies, it might affect the country's macroeconomic foundation."

Bank Indonesia has said it would act more aggressively to control the volatility of the rupiah and the inflation through its interest rate instrument, which Ogawa said was sensible policy.

Commenting on the government's decision to delay its bond offerings for this month, Ogawa said that it would unlikely affect Indonesia's rating outlook, as this was mostly caused by the market's current situation.