as published in Bisnis Indonesia daily newspaper
Tuesday, 26/01/2010 00:00 WIB
RI Approaches Investment Grade
Minister of Finance: Indonesia Worthy of Having Higher Grade
JAKARTA: Indonesia only needs to have one more rating to obtain investment grade after Fitch Ratings raises Indonesia's local and foreign currency-denominated long-term grades to BB+ from BB.
International ratings agency Fitch Ratings gives stable outlook. Country ceiling is also improved to BBB- from BB+. In the meantime, short-term grade is steady at B.
"The improved grade shows Indonesia's resiliency against the global financial crisis during 2008-2009, thanks to the country's our improved public financial management and economic fundamentals," said Ai ling Ngiam, Director of Fitch Ratings, yesterday.
The agency also spotlights a decline in public debt ratio to 30% of GDP.
In addition, the improved rating is also attributable to an increase of 28% in foreign exchange reserves to USUS$66 billion. Fitch cites Indonesia as a country recording the eighth largest economic growth (4.6% of GDP).
"There is fiscal flexibility for the government to start long-term ambitious agenda to deal with development problems, such as infrastructure."
However, Fitch emphasizes that the economic improvement measures have to be coupled with investment promotions, industry competitiveness improvement, and efforts to bolster export.
BI Deputy Governor Hartadi A. Sarwono viewed the improved rating would make it easier for Indonesia to reach investment grade level. "The increased rating shows our economic resiliency against external factors."
Another factor leading to the improved grade was Indonesia's surplus balance of payment.
"Our state budget and finance is also healthy," he added.
Minister of Finance Sri Mulyani Indrawati disclosed it was about time for Fitch to upgrade Indonesia's rating. She continued that Indonesia should instead be given higher rating since its economic condition had been above those of most of developing countries.
Director General of Debt Management at the Department of Finance Rahmat Waluyanto hoped the higher grade would make T-bond yield more efficient and bolster investments on declining risk.
"We can also consider the improved rating a form global recognition to the performance of the fiscal and monetary authorities in managing the State Budget, debt, and monetary stability," he told Bisnis via SMS.
Head of Debt Capital Markets at PT NC Securities Heru Helbianto believed foreign investors' confidence on bonds issued by Indonesia would increase, thus, lowering cost to issue T-bonds.
"This will stimulate the government and companies to seek new financing."
On the other hand, the government was reminded to stay alert for the surging hot money inflow to Indonesia in the short-tem following the improved rating.
Dradjad Hari Wibowo, an economist at the Sustainable Development Indonesia, argued the improved rating would not lead to foreign direct investment increase. Instead, it would trigger short-term, hot money inflow to Indonesia, which created negative effects.
According to him, it would be better if the government could convince China to spend money on infrastructure projects to bolster investments more significantly.
Co-Chairperson of Commercial Development of the Indonesian Automotive Industries Association Jongkie D. Sugiarto disclosed the improved rating would positively affect investment climate in Indonesia.
"First, lenders will be more comfortable. Second, it spells positive signals for the Indonesian economy, and third, investors will be more interested in making investments in Indonesia."
On another note, the Investment Coordinating Board (BKPM) states it is preparing several big projects, such as in West Kalimantan and Riau Islands, most of which are natural resource-based projects.
"Such projects will help bolstering infrastructure facilities in Indonesia to bolster economic growth and development," said Head of BKPM Gita Wirjawan in his press release yesterday.
In the meantime, the National Development Planning Agency (Bappenas) believed GDP in the medium-term would not be eroded by the risks of tighter financial regulations imposed by countries after the crisis.
Lukita Dinarsyah Tuwo, Deputy State Minister/Head of Bappenas, exposed the government would mine domestic economic potential deeper to anticipate risks.
"We are ready to anticipate this. In the 2010-2014 National Medium-term Development Plan, we also inform that the global economic growth outlook may not be as conducive as we expect." (Bisnis/aph/iaa/agi/hta/dea/smu)