However, Danny Suwanapruti, analyst at Goldman Sachs, expects S&P to grant investment grade status to Indonesia within the next six months in line with the nation's fiscal reforms (including the healthier state budget and the higher degree of fiscal credibility, partly supported by the government's tax amnesty program). Currently, S&P still assigns the BB+/positive outlook to Indonesia (known as junk status), which is one notch below investment grade status. S&P is known as the most conservative among the world's top three credit rating agencies.

Although S&P is broadly positive about the Indonesian economy and informed last year that it would leave the door open for a future rating upgrade, it mentioned several factors that, for the moment, block this upgrade. These matters include expectation of rising budget deficits in the years ahead (amid bleak tax revenue realization), the decline in Indonesia's corporate credit quality, the high dependence of Indonesia on (raw) commodity exports, bleak per capita gross domestic product (GDP) at USD $3,600, and concern about the nation's banking sector.

Would S&P indeed grant the upgrade to Indonesia within the next six months, then various institutional investors are expected to pour funds into Indonesia's capital markets, particularly conservative Japanese institutional investors. Suwanapruti wrote in a new report that Indonesia would become one of the highest-yielding investment grade markets in the world after this upgrade and therefore could expect to see massive capital inflows. Japanese investors may invest up to USD $5 billion in Indonesian debt over the next year, up from USD $2.2 billion worth of Japanese holdings in Indonesian local-currency government bonds currently, in case the credit rating agency would assign investment grade status to Indonesia.

In fact, if Indonesia would be included in the Bloomberg Barclays Global Aggregate Index, a measure of investment-grade debt, then an additional USD $2 billion worth of inflows could reach Indonesia, also supported by the expectation that Indonesia's rupiah will outperform its Asian peers.

Credit Rating Indonesia:

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

Various sources