S&P raises RI rating on bullish outlook
The Jakarta Post, Jakarta
Ratings agency Standard and Poor's (S&P) upgraded Indonesia's credit rating on Wednesday, on the back of improved political stability and a positive economic outlook.
"Indonesia's macroeconomic stability, declining debt and debt- servicing burden, steadfast fiscal management and favorable external liquidity position" were the reasons given by S&P in a statement for the upgrade.
S&P recognized that efforts to reduce debt have progressed significantly over the last several years, with the public sector net debt burden having fallen to 72 percent of gross domestic product (GDP) this year from 130 percent in 2000.
On the political front, the trouble-free legislative and presidential elections this year considerably reduced political uncertainty -- a prerequisite for the revival of the flow of investment into the country.
S&P raised the country's long-term foreign currency credit rating one step to a B+ from a B, while the long-term rupiah debt rating was upgraded two levels to BB from B+.
The ratings are still below the investment levels and put the country on par with Pakistan and one level above Venezuela, according to Bloomberg.
Still, the upgrade is an acknowledgement from the agency of the steady progress Indonesia has made over the past several years in its economic program.
The market reacted positively to the news with Jakarta share prices closing 0.91 percent higher on the day, extending gains on hopes of strong full-year bank earnings and in response to the upgrade.
The stock index closed up 8.863 points at 985.182 points.
"The upgrade shows that foreign investors have confidence in Indonesia. Certainly, it will help lower the interest payments on our overseas debt," chief economics minister Aburizal Bakrie said in response to the ratings upgrade.
An improved rating reduces investment risks in the country, allowing the government to borrow funds at cheaper rates.
The upgrade should provide a boost for the government, which is planning to issue up to US$1.5 billion in sovereign bonds in the first quarter of next year as a financing source to help plug the budget deficit.
Building on this success, the country should now press ahead with efforts to improve the business and investment climate, so as to accelerate economic growth which has averaged in the past five years a modest 4.1 percent, the S&P statement said.
"If there is only slow improvement in these areas, it would limit the country's trend growth," said Agost Benard, an agency analyst.
Indonesia's economic growth has lagged behind many of its regional peers and has been largely dependent on domestic consumption, with investment still hard to come by. The Central Statistics Agency said domestic consumption makes up about 70 percent of GDP.
For 2005, the government has targeted economic growth of 5.5 percent -- the fastest pace since the economic crisis.
In another vote of confidence for Indonesia, the agency also raised the rating of the country's four major corporations and three top banks.
The ratings of telecommunications firms Telekomunikasi Indonesia (Telkom), Telekomunikasi Selular (Telkomsel) and Indonesian Satellite (Indosat), and cigarette maker Sampoerna were all raised to BB-minus from B-plus.
The long-term foreign currency credit ratings on Bank Mandiri, Bank Danamon and Bank Negara Indonesia were upgraded to B-plus from B.