In Moody's opinion, the payment obligations represented by the securities available on offer are ranked pari passu with other senior, unsecured debt issuances of the Government of Indonesia and thus justify a rating at an equal level. (source)
"Indonesia's sovereign rating has been supported by increasingly robust domestic demand over the past few years, which has helped to shield the economy from the global financial crisis. In the ensuing recovery, the pickup in commodity prices has further bolstered to the economic outlook. Overall, growth looks to be sustainable and has not been accompanied by significant overheating pressures," Moody's argued.
In addition, the rating agency continued, government finances continue to be managed conservatively with deficits averaging below 2% of GDP since 2001. However, further improvement has been encumbered by the lack of progress on subsidy reform, while structural issues impede the effectiveness of government expenditure. Nonetheless, the government's debt burden as a share of GDP has fallen even through the global recession and is likely to remain on a gradually improving trend.
Indonesia's foreign currency reserve adequacy has also benefited since the crisis from strength in non-oil and gas commodities exports and larger FDI and portfolio inflows, some of which may be reversible. As a result, the stock of foreign currency reserves have more than doubled from $51.6 billion at end-2008 to $113.9 billion in October 2011, or more than two times residual short-term external debt.
"Challenges to the rating include the relatively shallow depth of Indonesia's capital markets, manifested in fairly large non-resident ownership of government securities. As this poses a key vulnerability in the event of substantial capital outflows, the government has put together a crisis management protocol to stabilize the bond market and mitigate any adverse effects on deficit financing," Moody's concluded. (Theindonesiatoday.com)
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