Fitch Upgrades Indonesia’s Rating to Investment Grade

By webadmin on 07:50 pm Dec 15, 2011
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Jakarta Globe

Indonesia’s
sovereign debt rating was raised to investment grade by Fitch Ratings on
Thursday, citing the country’s strong and resilient economy.

The
rating assessor said it raised Indonesia’s long-term and local
currency debt rating to BBB- from BB+, putting the country into
investment grade after 14 years. The outlook of both ratings is
stable, Fitch said.

“The upgrades reflect the country’s strong and resilient economic
growth, low and declining public debt ratios, strengthened external
liquidity and a prudent overall macro policy framework,” said Philip
McNicholas, director of Fitch’s Asia-Pacific Sovereign Ratings group in a
statement sent to the Jakarta Globe.

Indonesia lost its investment grade rating in December 1997, at the
onset of the Asian financial crisis, which saw almost all of the
country’s banking system collapse. Indonesia spent more than Rp 450 trillion to
bail out lenders then.

Fitch Ratings also forecast Indonesia’s $700 billion economy to grow to
an average of more than 6.0 percent per year through 2013, despite a
less conducive global economic climate.

“Indonesia’s
domestically-oriented economy and success in delivering relatively
strong economic growth without the creation of external imbalances, or a
reliance on short-term external financing suggests economic growth
prospects should prove resilient to external shocks, as was the case in
2008,” Fitch said.

“Low public debt and positive real interest rates
give the authorities policy flexibility to respond to any slowdown,” the
ratings agency said.

Analysts and economists in Jakarta said other ratings agencies such
as Moody’s Investors Service and Standard & Poors, which raised the
country’s sovereign debt rating to one level below investment early this
year, may soon join Fitch in upgrading the country’s rating next year.

Moody’s Investors Service raised the nation’s rating in January to Ba1
while Standard & Poor’s increased Indonesia’s long-term
foreign-currency rating one level to BB+ from BB in April, with a
positive outlook. The rating is one level below investment grade.

“We welcome this long awaited positive news. Technically, it should
open up the restriction on a universe of domestic investments  which
foreign funds are allowed to invest,” said Jeffrosenberg Tan, head of
research at Sinarmas Sekuritas in Jakarta. 

“The investment grade does
not mean a lot nowadays. Our rating should be a lot better than highly
indebted developed countries. Judging from the relative strength of
our sovereign balance sheet compared to developed counterparts,
Indonesia should have been awarded a lot sooner then now,” Jeffrosenberg said.

Fitch also said that a strong foreign exchange reserve by Indonesia has
put the country in a strong position to shield it from being
hit by the impact of the Eurozone debt crisis.

“The strengthening of
external finances through substantial reserve accumulation has
insulated domestic economic and financial stability during recent
periods of intensified portfolio capital flow volatility,” Fitch said.

Indonesia’s foreign exchange reserve stood at $113.9 billion as of the
end of November of this year, compared with $95 billion early this
year, according to data from Bank Indonesia.

The rupiah, which has been
under selling pressure in recent weeks, traded at 9,135 against
the dollar on Thursday, falling 0.5 percent from Wednesday’s close at
9,090. Bank Indonesia officials have said that they will continue to
intervene in the market to support the rupiah.