Editorial: Govt Needs to Act to Get a Higher Rating

Indonesia achieved a milestone last month when it finally received an investment-grade rating from Fitch Ratings. But that was only the beginning of the country’s long climb up the investment ladder.

There is no denying that the nation has made significant gains. That should not, however, lull us into complacency, because much hard work lies ahead.

In its latest commentary on Indonesia, the ratings agency noted that the country could achieve another rating upgrade if it could tackle problems with its infrastructure, crack down on rampant corruption and prepare measures to mitigate external shocks. These will require careful planning and more importantly, a strong commitment and political will.

Philip McNicholas, Fitch’s director for Asia-Pacific sovereigns, noted that Indonesia scores lower on these points when compared to its BBB peers such as Thailand, which it currently rates one grade lower than Indonesia.

Indonesia could earn another upgrade over the next 12 to 18 months if it is able to tackle these challenges. Having passed a land acquisition law last month, it should be able to push ahead with numerous infrastructure projects. The key is to start now and not dally too long. Urgency is of the essence.

On being prepared for further external shocks as the crisis in Europe drags on, it is reassuring to hear Finance Minister Agus Martowardojo say that his ministry has prepared safeguards for a sudden shock in the global market.

“Crisis management protocols” have been prepared to counter shocks in financial and capital markets, he said, and a “bond stabilization framework” will mitigate any impact of a sudden flight of capital from overseas investors.

These steps bode well for the country’s fiscal position. The government, however, must be more aggressive in disbursing development funds that in the past few years has been slower than hoped for.

Indonesia is in a strong position to push ahead. It has all the factors necessary to become a top-10 world economy in the next 10 to 15 years but this will not happen by itself. Decisive government action is required for this scenario to play out.