Fitch upgrades Indonesia, cites economy’s resilience to shocks

JAKARTA (Reuters) – Fitch Ratings raised Indonesia's credit ratings a notch above its lowest investment grade on Thursday, saying economic and monetary policies have made Southeast Asia's largest economy resilient to external shocks.

The rating was raised to BBB from BBB-, with a stable outlook. The upgrade means Indonesia has a higher rating from Fitch than from S&P Global Ratings and Moody's Investors Service.

Investors welcomed the news. The rupiah strengthening slightly and the benchmark stock index rose more than 1 percent, touching a record high before its gain was pared.

For Fitch, Indonesia is now on par with its ratings for the Philip- pines and Italy.

Finance Minister Sri Mulyani Indrawati said the Fitch move would increase confidence in Indonesia, which is "needed" as passage of the US tax bill could hurt sentiment about emerging nations.

If Indonesia's good foundation is recognised internationally, "we would have extra resilience so we won't be swept away by sentiments," she said.

Fitch said Indonesia's monetary policy "has been sufficiently disciplined to limit bouts of volatile capital outflows during challenging periods," the agency said in a statement.

"Macro-prudential measures have helped curb a sharp rise in corporate external debt, while financial deepening has coincided with improved market stability," it said.

Bank Indonesia (BI) Governor Agus Martowardojo said the upgrade puts Indonesia's credit rating at the highest since 1995.

BI "will continue its commitment in maintaining macroeconomic and financial system stability to support a strong, sustainable, balanced, and inclusive economic growth," Martowardojo said.

Luky Alfirman, a senior Finance Ministry official, said the Fitch upgrade will help Indonesia attract more foreign and domestic direct and portfolio investment.

In December 2011, Fitch restored Indonesia's sovereign rating back to investment grade after nearly 14 years. In May this year, S&P became the last of the three big agencies to again give the country an investment grade rating.

"Structural weaknesses" The Fitch upgrade comes at a time of some concern about possible impact on Indonesia from the US Federal Reserve's balance sheet normalisation and expectations of further US rate hikes in 2018.

In a bid to lift economic growth, BI unexpectedly cut its key policy rate in August and September, triggering some selling of Indonesian government bonds.

"Fitch's upgrade should be considered a good sign of confidence for Indonesia," said Taye Shim, head of research at brokerage Mirae Asset Sekuritas in Jakarta.

Shim added that the upgrade is "meaningful step in stimulating other rating agencies to potentially upgrade Indonesia's sovereign rating."

Moody's upgraded Indonesia's outlook in February to positive from stable.

President Joko Widodo's government has focused on cutting public spending, reducing investment bottlenecks and boosting tax collection.

Still, Fitch cautioned that the government's revenue intake is "very low" and that the economy remains hampered by "some structural weaknesses".

Indonesia has seen a rebound in exports this year, but tepid private consumption has hampered policymakers' efforts to lift growth well above 5 percent a year.

Fitch forecast that Indonesia will grow 5.4 percent next year, in line with the government's target.