INDONESIA - RATNGS - Moody’s Keeps Indonesian Outlook Stable

www.thejakartaglobe.com - Moody’s Investors Service has maintained a stable outlook for Indonesia’s economy, citing the country’s reliable economic growth and prudent debt management. The announcement appeared to be welcomed by the market, which on Monday pushed up bond yields and set the rupiah into stronger territory in Jakarta.

Moody’s analyst Christian de Guzman said relatively strong economic growth coupled with prudent fiscal management prompted the rating assessor to maintain its outlook for Indonesia. A stable outlook for a country’s sovereign debt means the rating assessor is unlikely to change its rating within the next 12 months.

“Indonesia’s Baa3 sovereign rating is anchored by strong growth, low government debt, and the recent track record of prudent fiscal management,” De Guzman said in a report released on Monday. (source)



The US-based rating agency raised the country’s sovereign debt rating to investment grade — at Baa3 level, the lowest level of investment grade — in January after Fitch Ratings upgraded its rating on the country in December.

With the two assessors raising their ratings on Indonesia, Standard & Poors is now the only one that has not changed its rating, keeping Indonesia’s rating one notch below investment grade.

De Guzman said that Moody’s expects Indonesia’s economic growth to expand at 6.0 percent this year, similar to the pace forecast by the Washington-based World Bank. “Robust domestic demand relative to net exports will likely result in a mild deterioration in Indonesia’s external payments position and depreciation of the rupiah,” de Guzman said.

The rupiah, which fell to as weak as 9,570 two weeks ago, strengthened slightly to trade at 9,478 against the dollar in Jakarta on Monday. The yield of the government’s 10-year bonds fell slightly to 6.10 percent on Monday from 6.15 percent the previous trading days, according to data from Indonesia Bond Pricing Agency. Bond yields move inversely to price.

De Guzman said that lower prices for commodities such as crude oil and palm oil should mitigate short-term inflationary pressures caused by recent weakness in the rupiah, and should help sustain the purchasing power of households.

Bank Indonesia has maintained its inflation target in the range of 3.5 percent to 5.5 percent this year. A moderate inflation outlook prompted the central bank last week to keep its benchmark interest rate at 5.75 percent, the lowest level since it was introduced in July in 2005.

Inflation should remain manageable this year, de Guzman said.

Moody’s, however, said improvement to infrastructure such as seaports and airports was the “key factor” to maintaining rapid growth in the long-term.

“Failure to improve capacity may compound inefficiencies and in turn adversely affect cost structures, posing a threat to price stability,” the report said.

The government has established the Master Plan for Expansion and Acceleration of Economic Development (MP3EI) to accelerate growth, including through overcoming infrastructure bottlenecks. The government says Rp 4,000 trillion ($422 million) is needed to build infrastructure development from last year to 2025.

Source: http://www.thejakartaglobe.com/economy/moodys-keeps-indonesian-outlook-stable/530849  - July 17, 2012