Bangkok--2 Dec--Moody's
Moody's Investors Service says that Indonesia's Ba3 sovereign credit rating and stable outlook remain appropriate -- even though pressures have risen -- as the country's underlying credit fundamentals are not likely to erode significantly and policy responses to the global financial crisis have been adequately constructive so far.
"This conclusion is underpinned by our assessment of the country's external vulnerability and liquidity management coupled with the ability of the authorities to maintain fiscal restraint," says Aninda Mitra, a Moody's VP/Senior Analyst, in regard to a new report -- which he authored
-- on recent developments in Indonesia.
"However, it seems increasingly urgent that Indonesia requires a crisis management framework more robust than what it has now, and without one, a prolonged global financial crisis could erode its sovereign credit quality more than is currently anticipated," says Mitra.
"In our view, Indonesia's reasonably healthy credit fundamentals fitting with its rating level, and reactive policies cannot ultimately substitute for greater access to hard currency or a wider financial safety net amidst prolonged global de-leveraging," says Mitra. "As such, the ability of the authorities in Indonesia to take precautionary and systemic measures as the global financial crisis unfolds in the future-- rather than piecemeal or reactionary -- steps would better support external credit fundamentals and domestic confidence."
"For now, Indonesia's small current account deficit is manageable, while its foreign currency reserve levels are adequate against maturing external obligations. However, mobile portfolio capital flows pose additional pressures, and currency substitution by domestic residents -- if confidence in the Rupiah were to decline -- could prove more problematic," says Mitra.
"Fiscal management is supportive of the sovereign rating, as Indonesia has the ability to contain the budget deficit within the domestic and external financing constraints it faces," says Mitra, adding, "The government's net and gross financing requirement (fiscal deficit plus amortizing debt) is expected to be 1% and 3% of GDP, respectively in 2009."
"Furthermore, the government does not have any global bonds coming due in 2009, and all its maturing foreign currency obligations -- in the amount of $6.4 billion -- are owed to official creditors," says Mitra.
"However, the trajectory of government debt ratios could face more challenges as a prolonged weakening of the Rupiah coupled with high domestic interest rates would lead to a ballooning of the government's debt stock and debt-servicing costs," says Mitra. "Thus in future periods, stretching beyond a year or so, the government's external debt maturity profile could also deteriorate much more than is currently anticipated."
"Accordingly, access to bilateral swap line and standby lines from the World Bank and other multilateral sources would provide credit support.
These should pre-empt deterioration in general-government, and also external, debt ratios," says Mitra. "In the absence of such arrangements, credit metrics are not immediately affected, but the risks could be amplified over time and amidst continuing global de-leveraging."
The report is entitled, "Indonesia: Ratings are holding up against global pressures and domestic strains".
It can be found at www.moodys.com.
NOTE TO JOURNALISTS ONLY: For a copy of these reports, please contact EMEA Press Information in London +44-20-7772-5456; New York Press Information +1-212-553-0376; Juan Pablo Soriano in Madrid