Fitch Ratings further stated that it considers Indonesia's sovereign's exposure to banking sector risks as "limited". Private credit represents only 36 percent of Indonesia's gross domestic product (GDP) and the banking system's health is relatively strong, although risks built up in the previous credit cycle imply a more challenging operating environment.

Despite the challenging global economic context, Indonesian authorities appear to shifted away from chasing their earlier (and too ambitious) economic growth targets and instead focus on macroeconomic stability and structural changes that should boost the economy on the longer term. Therefore, the Indonesian government presented a realistic 2017 State Budget. In fact, on some matters, the government set an "unambitious" target (in an apparent effort to over-deliver rather than under-deliver). For example, in the 2017 State Budget, the Indonesian government targets a economic growth pace of 5.1 percent year-on-year (y/y), while Fitch Ratings put its GDP growth forecast for Indonesia at 5.4 percent (y/y) in 2017 (and 5.7 percent in 2018) on the back of structural reforms, monetary easing and rising infrastructure spending.

Fitch Ratings has become more positive about Indonesia's medium and long term economic growth due to the government's reform efforts. Eye-catching reforms include a reduction in the number and duration of bureaucratic procedures - reflected by a strong improvement in Indonesia's ranking in the World Bank's Ease of Doing Business indicator from 106 to 91 - and a more standardized approach to minimum wage setting, which should prevent sudden and steep minimum wage growth in Indonesia (a big burden for foreign direct investment). However, Fitch Ratings also state that the real impact of the government's reform program on investment and GDP growth will depend on the implementation and to what extent the central government continues to create a more conducive investment climate.

Regarding the monetary and exchange-rate policy of Indonesia's central bank (Bank Indonesia) Fitch Ratings said it has been effective in weathering market turmoil, such as through ensuring comfortable foreign-exchange buffers, even though the policy stance could potentially be tested again in 2017 amid general emerging-market turbulence and a strengthening US dollar.

However, Fitch Ratings sees Indonesia as relatively vulnerable to shifts in market sentiment because the nation is largely dependent on commodities for its exports and portfolio inflows to finance its persistent current account deficit (that is expected to rise slightly to 2.3 percent of GDP in 2017 from 1.9 percent of GDP in 2016).

Other structural weaknesses of Indonesia include a low average per capita GDP (at USD $3,576 compared with the 'BBB' range median of USD $9,188), while governance continues to be weak (illustrated by a low score for the World Bank's governance indicator at 41st percentile versus the 'BBB' median of 58th percentile), and Transparency International's corruption index (88th of 168).

Meanwhile, the issue ratings on Indonesia's senior unsecured foreign- and local-currency bonds and foreign-currency sukuk (Islamic bonds) - issued through Perusahaan Penerbit SBSN Indonesia II and III - have also been affirmed at 'BBB-' by Fitch Ratings. Indonesia's Country Ceiling was affirmed at 'BBB' and the short-term foreign- and local-currency Issuer Default Ratings at 'F3', while the senior unsecured short-term issues were also affirmed at 'F3'.

Credit Rating Indonesia:

     Standard & Poor's        Fitch Ratings            Moody's
Rating Outlook Rating Outlook Rating Outlook
Indonesia BB+ Positive BBB- Positive Baa3 Stable