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Source: Reuters

UPDATE 1-S&P ups Indonesia rating outlook to positive

Published: 23 Oct 2009 01:23:13 PST

HONG KONG/JAKARTA, Oct 23 - Standard & Poor's revised up Indonesia's rating outlook to positive on improving debt ratios, as expected, but still kept Southeast Asia's biggest economy at BB-minus, or three notches below investment grade.

Helped by better political and economic stability, investors increasingly regard Indonesia as the new "BRIC" economy that could join the emerging market elite of Brazil, Russia, India and China, although the country faces obstacles such as poor infrastructure and a weak legal system.

S&P revised the outlook to positive from stable and kept its rating on Indonesia at three notches below investment grade. Other major agencies, Moody's Investors Service and Fitch Ratings, already rate Indonesia's at two notches below investment grade.

"The re-appointment of Sri Mulyani gave the signal that the current prudent fiscal management is likely to continue," said strategist Enrico Tanuwidjaja at OCBC in Singapore, referring to finance minister Sri Mulyani Indrawati, who was retained in President Susilo Bambang Yudhoyono's choice to retain Indrawati in his new cabinet. [ID:nSP460372]

"A second-half 2010 ratings upgrade is likely," said Tanuwidjaja.

Indonesia's credit ratings are still several notches below neighbours Singapore, Malaysia and Thailand, all of which are investment grade.

Yudhoyono, sworn in for a second, five-year term this week, appointed a mix of pro-reform technocrats such as Indrawati and political allies who lack reform credentials. [ID:nJAK459498]

"The outlook change takes into account Standard & Poor's expectation that debt reduction and underlying cautious fiscal management will remain key elements of macroeconomic policy," S&P said. [ID:nHKG303158]

"It also incorporates our view that a reform-minded leadership with a fresh and increased mandate will continue to pursue microeconomic reforms to increase Indonesia's growth potential, and further strengthen policy coordination and implementation thorough administrative reforms."

The state budget has forecast GDP growth at around 4.3 percent this year and 5.5 percent next year.

Hatta Rajasa, the newly appointed chief economics minister, said on Thursday he hoped growt could hit around 8 percent in 2014, when his five-year term ends.

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