Bangkok--2 Dec--Moody's
Moody's Investors Service has today placedon review for upgrade the Indonesian government's Ba2 foreign and local-currency bond ratings.
The main reasons for the decision are:
(1) Indonesia's economic resilience is accompanied by sustainedmacroeconomic balance;
(2) the government's debt position and the central bank's foreign currency reserve adequacy are improving; and
(3) the economic policy framework remains increasingly well positioned to deal with evolving macroeconomic challenges and potential shocks.
The rating review also applies to Indonesia's Ba1 country ceiling forforeign currency (FC) bonds and Ba3 ceiling for FC bank deposits. Thecountry ceiling for short-term FC debt is "Not Prime" and remainsunaffected by this action.
These ceilings act as a cap on ratings that can be assigned to the foreigncurrency obligations of other entities domiciled in the country.
RATIONALE FOR THE REVIEW FOR POSSIBLE UPGRADE:
Moody's had placed Indonesia's Ba2 sovereign ratings on positive outlookin June 2010, after a one-notch upgrade in September 2009, on account ofthe country's resilience to the global financial crisis, improvinggovernment credit-metrics, and its ability to manage domestic political challenges to the reform agenda without damaging key policy institutions' credibility or effectiveness.
"We have now placed the sovereign credit ratings and country ceilings on 'Review for Possible Upgrade' as the economic recovery is being sustainedalongside well managed external accounts and reasonably good inflationfundamentals," said Mr. Aninda Mitra, a Vice-President at Moody's and its
lead sovereign analyst for Indonesia.
"Moreover, the recent improvement in Bank Indonesia's foreign currency reserve position coupled with continuing reduction in the government's debt burden are reducing risk perceptions and encouraging greater inflows of foreign direct investment and long-term capital," he added.
"Additionally, amidst growing inflows of foreign portfolio investment, monetary stability alongside ongoing policy flexibility are enablingIndonesian authorities' to gradually deepen money markets and heighten financial absorption capabilities," says Mr. Mitra.
RISKS TO THE RATING AND ECONOMIC OUTLOOK
Moody's considers key risks to the rating outlook to be embedded in the country's political system. Opposition from coalition partners have slowed the government's drive to institute economic reforms, however, this has not yet impacted overallpolicy management capabilities or near-term economic prospects.
Indonesia's banking sector prudential ratios are well positioned.However, if bank supervision is constrained by political interference or poor governance, the risk of a shock to the real economy or to thegovernment's contingent liabilities could rise.
CREDIT TRIGGERS FOR A POSSIBLE UPGRADE:
These would include assessments during the review of whether:
(1) market deepening prospects and the ongoing development of the domestic institutional investor base will continue to lend more stability to thegovernment's onshore debt "finance-ability";
(2) ongoing monetary management will continue to anchor medium-term inflation expectations as well as investor confidence amidst lingeringglobal financial market uncertainty --derived from, but not limited to, quantitative easing in the U.S. and Japan, banking and sovereign debt problems in the Eurozone; and
(3) the durability of the greatly strengthened balance of payments andexternal payments position.
PREVIOUS RATING ACTION & METHODOLOGY
Moody's last rating action on Indonesia was on June 21, 2010 at which time the outlook on the Ba2 sovereign rating was shifted to positive,from stable.
The principal methodology used in rating the government of the Republicof Indonesia is "Moody's Sovereign Bond Methodology", published in September 2008, which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.
Singapore
Aninda S. Mitra
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Singapore
Thomas J. Byrne
Senior Vice President - Regional Credit Officer
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Moody's Investors Service Singapore Pte. Ltd.
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