Bangkok--21 Jun--Moody's Investors
Moody's Investors Service has today changed the outlook on Indonesia's Ba2 local- and foreign-currency sovereign ratings to positive, from stable. The improvement in the outlook also applies to Indonesia's Ba1 foreign currency bond ceiling and Ba3 foreign currency deposit ceiling.
The positive outlook broadly reflects the country's capacity for sustained strong growth, the overall stability and effectiveness of its fiscal and monetary policies, and expectations of further improvements in the government's financial and debt position.
"The core of Indonesia's growth story is driven by a large domestic market that is appropriately managed by a well-tested economic policy framework," says Mr. Aninda Mitra, Moody's Vice-President and its lead sovereign analyst for Indonesia.
"A series of external disturbances, culminating -most recently- in instability in several European sovereign debt markets, have had no serious implications on Indonesia's credit fundamentals --which remain on an improving trend," adds Mitra.
He also notes that the government remains committed to political and financial stability. This is underscored by its concerted crackdown against terrorist groups. And recent appointments and nominations at the finance ministry and at the central bank are supportive of policy continuity and institutional credibility.
Investigations into the alleged irregularities in the bailout of Bank Century represents primarily an internal political struggle within the ruling coalition. Nonetheless, fiscal and monetary policy management remains unaffected and incremental progress in structural reforms, in several key areas, is still likely ," says Mitra.
According to Mitra, the improving trajectory of Indonesia's sovereign rating incorporates the significant reduction in the government's debt burden and its fiscal financing requirements relative to many ratings peers. It also reflects the ongoing diversification seen in the government's sources of fiscal funding.
"However, in the future, the deepening of domestic capital markets --which include a larger role for a reliable domestic institutional funding base-- could lend greater stability and structurally improve the government's market access, as well as help sustain the positive momentum in sovereign ratings," says Mitra.
The increase in Indonesia's foreign currency reserves is also notable, while better prospects for foreign direct investment could sustain further improvements in the overall external position in line with its sovereign ratings peers. Moreover, access to exceptional funds from the Chiang Mai multilateral initiative, in the event of need, is another supportive development for the ratings.
"Improvements in the level and composition of the government's debt, if accompanied by sustained improvement of the country's external position, or a deepening of domestic markets, would be the most likely triggers for a future upgrade," says Mitra.
Lastly, "the recent widening of the overnight interest rate corridors, and greater restrictions on the holding period of Bank Indonesia securities' (SBI) holdings are ratings neutral as it does not fundamentally restrict the timely and comprehensive servicing of credit obligations," says Mitra.
Moody's last rating action on Indonesia was on September 16, 2009, when the sovereign rating was upgraded to Ba2 with a stable outlook.
The principal methodology used in rating the government of the Republic of 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 Singapore Pte Ltd.
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Singapore
Thomas J. Byrne
Senior Vice President - Regional Credit Officer Sovereign Risk Group Moody's Singapore Pte Ltd.
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