Indonesia Given Positive Rating

Moody's outlook upgrade promises robust future for investors: analysts

By Tabita Diela
Tuesday, February 14, 2017

Moody's Investors Service's decision to upgrade its credit outlook on Indonesia to "positive" from "stable" late on Wednesday (08/02) provided investors with a much-needed assurance of the country's long-term prospect.

A better outlook indicates a possible rating upgrade that allows the country to attract more foreign investors by selling government bonds at lower rates. Moody's, in the same note, also reaffirmed its Baa3 – which is at the bottom of investment-grade bond ratings, just one grade above junk bond – issuer rating for Indonesia.

"Moody's outlook improvement can be seen as a recognition from the international organization of Indonesia's fruitful effort to maintain macroeconomic and financial system stability," NH Korindo Securities analyst Bima Setiaji told the Jakarta Globe on Thursday.

"[The upgrade] boosts investors' trust in Indonesian investment, not only in the capital market but also in the real sector, which will support Indonesia's economic growth in the future," he said.

This would be in line with President Joko Widodo's target to attract Rp 670 trillion ($50 billion) in investment this year and Rp 860 trillion next year.

The Investment Coordinating Board has set even higher targets of Rp 678.8 trillion this year and Rp 860 trillion next year for both local and foreign investments.

Moody's noted that Indonesia's vulnerability to external shocks is declining due to narrower current account deficits, higher foreign exchange reserves, and a slower rise in private sector external debt.

Indonesia's current account deficit is expected to remain moderate this year after it fell to an estimated 1.8 percent last year from over 3 percent of the gross domestic products (GDP) in 2013 and 2014 as the goods trade balance reverted to a surplus in 2015, Moody's said.

The global rating agency also lauded Indonesia's progress on structural economic, fiscal and regulatory reforms, suggesting improving effectiveness on such reforms.

Moody's expects Indonesia's GDP growth to remain above other Baa-rated peers, following the country's GDP growth acceleration to 5 percent last year from 4.9 percent in 2015. The government, as stated in this year's state budget, targets 5.1 percent economic growth this year.

Danareksa Sekuritas research analyst Lucky Bayu Purnomo said the market has responded positively to Moody's outlook upgrade. He reminded, however, that the response may have been distorted as the market is still waiting on the release of listed companies' financial reports and the results of shareholder meetings.

The Jakarta Composite Index (JCI), the country's benchmark stock index, increased by 0.2 percent to 5,372.08 on Thursday after the outlook upgrade, according to Google Finance.

The Indonesian rupiah also touched a four-week high following the outlook upgrade, Reuters reported. The rupiah was traded at 13,310 per dollar on Thursday's closing, up 0.1 percent after it touched 13,280 against the greenback — its strongest level since Jan. 12 — earlier in the session.

The Indonesia Composite Bond Index issued by the Indonesia Bond Pricing Agency (IBPA) rose 0.1 percent to 212.9 on the same day.

"We understand that Moody's view was based on the hope that Indonesia's economy will grow in the future on the back of the government's announced policies," he said.

"New toll roads, power plants, airports are still waiting to be finished. The market will appreciate once these projects are completed, but Moody's has already seen that," he said.

This article first appeared on the Jakarta Globe website on February 9, 2017.

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