Indonesia one step closer to investment grade rating
Indonesia’s years since the late-90s Asian Financial Crisis and rebirth as a democracy haven’t always been smooth, but its progress was acknowledged yesterday as international ratings agency Moody’s Investor Services upgraded its sovereign credit rating from Ba2 to Ba1, one level below official investment grade.
The new rating had been anticipated for some time, and is Indonesia’s highest since the events of 1998 wreaked havoc on both the economy and the government of the day. In the 21st century the country has proved to doubters that it could remain a relatively stable new democracy with territorial integrity and the ability to make the most of its economic resources. The economy grew more than 6% in 2010, which Moody’s cited along with “sound budgetary position, improving debt position and foreign currency reserves” as reasons for the adjustment.
Some concerns still remained, said Moody’s, and speculation remains as to whether Indonesia can achieve full investment grade this year. Any loss of control over inflation of the value of the rupiah could see the rating fall back down, as could continued obstruction of the government’s economic reform agenda from members of Indonesia’s parliament. The rating will rise to Investment Grade if Indonesia can demonstrate ongoing price stability, soundness of bank supervision, and gradual deepening of local capital and credit markets to support the government’s onshore debt finance-ability.
An investment grade rating is vital to Indonesia’s ability to attract large foreign investors, many of which are institutions bound by rules or law to invest only in countries or companies rated ‘investment grade’ by major agencies.
source & articles: Sydney Morning Herald and Moody’s
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