S&P unlikely to review its RI rating before election

Dadan Wijaksana, The Jakarta Post, Jakarta

International rating agency Standard and Poor's (S&P) acknowledged progress in the Indonesian economy but said that a review of the country's sovereign rating would depend on the implementation and results of the upcoming general election.

Takahira Ogawa, S&P director for its Asia-Pacific sovereign ratings division, acknowledged on Thursday that although theoretically the agency makes a continuous review, certain occurrences during the election might stall the review until the end of the event.

"If the election indicates clearly a continuity in the current reform program, for example, we may not have to wait for the election (to be completed). However, there could be a situation in which we might have to look at what kind of new government is emerging.

"This includes the president and vice president, as well as various parties in coalition; then we might have to wait until the end, although, of course, there are other factors like economic and fiscal data, and so on," Ogawa told The Jakarta Post in an interview.

Ogawa was on the last day of a three-day visit to the country as part of the agency's annual visit, to update information on Indonesia's economic performance.

Indonesia is gearing up for elections in April, in which a total of 550 legislative seats will be up for grabs as 24 parties fight for a slice of 145 million votes.

A direct presidential election, the first ever in the country, will then take place afterwards.

"Not that we're worried too much about the election, but there is uncertainty due to lack of experience with operating the new system," Ogawa added.

In October last year, the agency upgraded the country's credit rating one notch to B, on the back of improvements, notably on the macroeconomic side, made by the government. A rating of B is still below investment grade. An upgrade in the current rating would help lessen the cost to the government or local companies when borrowing from overseas.

Up till now, the government has been doing a good job in the macroeconomic area, although this has yet to be translated into strong economic growth -- what Ogawa described as a lack of a clear-cut growth strategy.

"After stability in the economy, the next questions should be, 'what's the future growth strategy and how to compete with other nations in the region'."

"At the moment, we do not see clear directions or plans by the country in relation to that," said Ogawa, pointing, as an example, to a lack of integrated effort to boost the investment climate.

While acknowledging partial and sporadic efforts had been made, Ogawa said it was insufficient unless structural reforms, relating to the judiciary and corruption, were also made as appropriate, and simultaneously.

"Corruption for instance: I don't know whether it's better now or worse than it was in the old days," said Ogawa, while adding not only did it discourage investors from coming but also affected various productive projects -- which in turn held back the country's growth.