Sovereign Credit Rating of Indonesia held at BBB-/stable outlook
The Rating and Investment Information Inc (R&I), a rating agency from Japan, kept Indonesia’s Sovereign Credit Rating at BBB- with a stable outlook. In their press release, R&I stated that the four key factors behind the decision are: (a) Indonesia’s capacity to achieve sustainable economic growth in the long term (at around six percent per year); (b) conservative fiscal management (causing a marginal fiscal deficit); (c) a sound banking sector; and (d) a low level of government debt.
In more detail, the analysis of R&I revealed that amid pressures on the exchange rate, Indonesia maintained adequate foreign exchange reserves to meet its short-term external debt liabilities. With the policy response currently undertaken by economic authorities in Indonesia, R&I remains steadfast in its conviction that Indonesia can successfully maintain investment grade status. In addition, abundant natural resources and a sizeable domestic market remain the cornerstones of the Indonesian economy. Underpinned by inflows of foreign direct investment, Indonesia will achieve sustainable economic growth in the medium term.
However, R&I does express some concern about Indonesia's current account balance: "The current account balance, which ran into a deficit of 2.8 percent of GDP in 2012, has been deteriorating in 2013. Exports remain sluggish due to a deceleration in China's economy, a major export destination for Indonesia. Factors such as weaker domestic demand, higher fuel prices and an emergency stimulus package which the government introduced in August may prevent imports from rising further, but their contributions should not be enough to improve the trade balance. R&I expects the current account deficit to widen to around 3 percent of GDP in 2013. Because a further widening of the current account deficit could worsen funding conditions and weigh on the economy, close attention is required for its developments."
The Governor of Bank Indonesia, Agus D.W. Martowardojo, stressed that “we warmly welcome the affirmation of investment grade status from R&I and appreciate R&I’s recognition concerning the efficacy of the policy response taken by economic authorities in Indonesia in terms of anticipating economic shocks and ongoing uncertainty on global financial markets. We will continue our commitment to strengthen economic stability overall and expedite adjustments towards a more sound economy.”
Sources: Bank Indonesia & News Release R&I