Moody’s raises Indonesia outlook; top minister takes a dig at S&P

JAKARTA: Indonesian authorities welcomed a credit outlook upgrade by Moody’s as a sign investors are increasingly comfortable with the country, while the chief economics minister chastised Standard & Poor’s for holding back an investment-grade rating.
Moody’s Investors Service upgraded its credit outlook on Indonesia sovereign debt to “positive” from “stable” late on Wednesday and reaffirmed its Baa3 ratings, the lowest notch for investment grade debt.
The agency noted that Southeast Asia’s largest economy is now less vulnerable to external shocks and has a lengthening track record of economic stability and fiscal discipline.
This followed a similar December move by Fitch, which has an equivalent BBB- rating, and comes as Indonesia’s policymakers seek to attract more foreign investment when emerging market assets globally are under stress.
Late last year, the government sanctioned JP Morgan Chase & Co. for downgrading the country’s equity market. Finance Minister Sri Mulyani Indrawati said in January she was concerned the downgrade could fuel a stampede out of the country’s assets.
Bank Indonesia Governor Agus Martowardojo said the Moody’s upgraded outlook showed international recognition of the country’s “success in maintaining macroeconomic and financial stability that create a conducive environment for sustainable growth.”
On Thursday, Indrawati said the government will continue to strengthen policies to “rationalize risk perception.”
Officials have long been hoping for a ratings upgrade from Standard & Poor’s, which has kept Indonesian debts at junk status. Fitch Ratings gave Indonesia an investment grade ratings in 2011 and Moody’s in 2012.
Minister’s views
But Darmin Nasution, the chief economics minister, said investors should dismiss the fact S&P still has not given an investment grade rating.
“We don’t know what (S&P’s) problem is. Its explanations change all the time… If it keeps changing its mind, don’t listen to it,” Nasution told reporters.
S&P declined to comment on the difference between its assessment and that of its competitors.
In a report in January, S&P said that although the US November election caused some initial weakness in the rupiah, investors have been buying Indonesian bonds.
“We continue to see this confidence as contingent upon continued progress in reforms to foreign investment policy, fuel subsidies and ease of doing business,” S&P said.
Jean-Charles Sambor, deputy head of emerging market fixed income at BNP Paribas Investment Partners in London, said “Among the three agencies, S&P has been more conservative in its assessment of Indonesia but we expect them to be the next one to upgrade.”
Moody’s said key drivers of its change in outlook were smaller current account deficit and higher foreign exchange reserves.
Indonesia’s current account deficit in 2016’s last quarter was its smallest in five years, while foreign exchange reserves at end-January were the highest since August 2011.
Challenges in revenue collection were highlighted by Moody’s as a risk. The rating agency also warned it could lower the outlook if reform efforts unravel.
Moody’s said it would upgrade Indonesia’s ratings if the government reduces reliance on external debt, while at the same time strengthening its financial institutions.
On Thursday, Indonesian bonds rallied across the board both in the local currency and dollar bond markets. The rally saw yields falling 6-7 basis points in the rupiah government bonds.
The Indonesian sovereign sector has been the best performer in the JPMorgan Asia Credit Index in 2017 with a return of 4.01 percent.