Bangkok--16 Apr--Moody's Investors
Moody's Investors Service has assigned a foreign currency rating of Ba3 with a stable outlook to the Republic of Indonesia's forthcoming Global Sukuk.
On account of the ongoing global crisis, the year on year real growth rate of Indonesia's economy may slow to 3 -- 3.5% this year, down from 6% in 2008. "Weakening global demand will hurt Indonesia's exports which remain heavily dependent on commodities, and the investment cycle will also decelerate"--said Aninda Mitra, Moody's lead sovereign analyst for Indonesia, adding-- "Nonetheless, this is still a robust growth rate in the sharply weakening global environment."
According to Mr. Mitra, Indonesia's economic resilience is supported by a large, domestic demand driven economy; relatively lower exposure to global trade and capital flows than at most other East Asian economies; and improving institutional capabilities. And its vulnerability to external shocks is limited by the declining trend in external indebtedness, adequate foreign currency reserves. An appropriate mix of fiscal and monetary policy responses will likely be sustained through the ongoing elections and beyond.
"At a time of global de-leveraging, the lack of a more stable investor base for government bonds coupled with the dependence on foreign financing of the government deficits has raised Indonesia's debt market volatility more than its rating peers," said Mitra.
However, Indonesia's external and the government's fiscal financing needs are not onerous. The country's overall short-term external financing needs --including foreign bank deposits- were comfortably positioned at around 65% of currently available foreign currency reserves, said Mitra.
"Moreover, several precautionary lines of credit with multilateral institutions and foreign currency swap arrangements on a bilateral basis, and Indonesian authorities' widening range of issuance strategies would also broadly support the balance of payments as well as the fiscal position," added Mitra.
The susceptibility of the ratings to event risks is moderate, according to Mitra. The legislative elections of April and the presidential elections of June may result in a change in the coalition support base but seem likely to return to power a government headed by President Yudhoyono, backed by a strong mandate for his political party. Political risks from other factors, ranging from conservative Islamic political activism to Jemaah Islamiyah terrorism or Acehnese separatism, have been contained.
Furthermore, financial risks from derivatives, or the un-hedged foreign currency debt of the corporate sector or currency mismatches in the banking sector's assets and liabilities were low and supervision and enforcement of regulations have improved.
"As a result, the banking and corporate sector will encounter more stress, but Indonesia faces the ongoing global financial volatility from a stronger position than at the time of the 1997 crisis," says Mitra.
The stable outlook on the Ba3 government bond rating is premised on the authorities' ability to continue managing the country's vulnerability to the global financial market crisis and recession in an appropriate fashion, while avoiding a deep and sustained deterioration in relative credit metrics.
The principal methodology that Moody's uses in rating the Republic of Indonesia is its Sovereign Bond Methodology, which can be found at www.moodys.com in the Credit Policy & Methodologies directory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory on Moody's web site.
Singapore
Aninda S. Mitra
Vice President - Senior Analyst
Financial Institutions Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308
Singapore
Thomas J. Byrne
Senior Vice President - Regional Credit Officer Financial Institutions Group Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308