Indonesia wins rating upgrade from Moody’s

JAKARTA: Indonesia won a sovereign rating upgrade from Moody’s Investors Service yesterday, months after Fitch Rating increased its own score, as the nation improves its resilience to global shocks.

The rating on the nation’s long-term, foreign currency-denominated debt was raised one level to Baa2 with a stable outlook, Moody’s said in a statement.

The upgrade brings Moody’s in line with the assessment of Fitch and puts Indonesia on par with the Philippines and India.

“Indonesia’s improving resilience and capacity to respond to shocks are among the key rating drivers,’’ Moody’s said.

The upgrade would boost President Joko Widodo’s efforts to finance hundreds of billions of dollars of infrastructure to fire up the economy ahead of a presidential election next year.

“This is a near-term positive for markets and a strong validation to Indonesia’s improving fundamentals, putting it in a good position to weather recent external storms,” said Euben Paracuelles, an economist at Nomura Holdings Inc in Singapore.

Southeast Asia’s biggest economy has been growing at about 5% and is expected to pick up pace this year, but is still well short of the 7% targeted by Widodo, known as Jokowi.

“The government’s adherence to its legally mandated budget deficit cap at 3% of gross domestic product and the central bank’s track record of prioritising macroeconomic stability over promoting short-term growth are among the rating drivers,’’ Moody’s said.

The government plans to narrow the fiscal deficit to below 2% of GDP next year from the 2.19% targeted in the 2018 budget.

“The acknowledgment is a great achievement on the back of ongoing global economic uncertainty affecting economic development in the region,” Bank Indonesia governor Agus Martowardojo said in a statement.

“The central bank will continue to monitor global risks and optimise its policy mix,’’ he said.

Bank Indonesia has succeeded in bringing down inflation to less than 4%, giving policymakers room to hold interest rates since October. Foreign reserves were at $126 billion in March after reaching a record $132 billion in January.

“While the upgrade helps support the rupiah and other assets, it won’t be enough to drastically change the trend as the nation has already won investment grades from the three major agencies,” said Teppei Ino, an analyst at MUFG Bank Ltd in Singapore. “The impact would be bigger if Indonesia was raised to A grade while the current-account balance is a more significant factor for the currency.’’