Singapore, January 18, 2012 -- Moody's Investors Service has today upgraded the Government of Indonesia's
foreign and local currency bond ratings to Baa3 from Ba1.
The ratings outlook is stable.
The key drivers of this decision are:
1. Moody's anticipation that government financial metrics
will remain in line with Baa peers.
2. The demonstrated resilience of Indonesia's economic growth
to large external shocks.
3. The presence of policy buffers and tools that address financial
vulnerabilities.
4. A healthier banking system capable of withstanding stress.
RATIONALE FOR THE UPGRADE TO Baa3
Indonesia's cyclical resilience to large external shocks points
to sustainably high trend growth over the medium term. A more favorable
assessment of Indonesia's economic strength is underpinned by gains
in investment spending, improved prospects for infrastructure development
following key policy reforms, and a well-managed financial
system.
In addition, robust growth has been accompanied by the continued
health of its external payments position, supported by increasingly
large flows of foreign direct investment, while inflationary expectations
are becoming better anchored at a more stable and historically lower level.
Prudent fiscal management has contained budget deficits at very low levels
and has reduced the government's debt burden as a share of GDP.
As a result, Indonesia's fiscal ratios now surpass many of
its higher-rated peers, providing more fiscal headroom to
respond to economic shocks. It has also reduced risk perceptions,
enabling the government to access international funding markets even during
periods of heightened risk aversion.
Policy buffers, including the central bank's large stock of
foreign exchange reserves and the government's bond stabilization
framework, have been recently deployed and remain ample as significant
lines of defense against destabilizing capital outflows. In addition,
the banking sector does not pose immediate or significant contingent risks
to the government's balance sheet, thereby raising fiscal
headroom and added scope to policy responsiveness to future shocks.
Issues related to governance and a fundamental assessment of institutional
strength remain a concern in regard to a further improvement in Indonesia's
credit fundamentals. In addition, continued progress on targeted
subsidy reform would be credit positive.
The stable outlook also reflects the expectation of continued policy flexibility
and the adept management of risks stemming from global financial market
volatility, based in turn on the tepid recovery in the US and the
ongoing sovereign debt stress apparent in the euro zone.
Indonesia's long-term foreign currency (FC) bond ceiling
was also raised to Baa2 from Baa3, while the long-term FC
deposit ceiling was aligned with the government bond rating at Baa3.
In addition, the short-term FC bond and deposit ceilings
were upgraded to P-3. The outlook for these ceilings is
stable. These ceilings act as a cap on ratings that can be assigned
to the FC obligations of other entities domiciled in the country.
The local currency bond and deposit ceilings were also upgraded to A3
from Baa1.
WHAT COULD CHANGE THE RATING--UP
The following factors could lead to an upgrade: Increased fiscal
space resulting from improved revenue mobilization; continued health
of the country's balance of payments and the financial system, coupled
with a longer track record of monetary and price stability; sustained
progress in addressing infrastructure bottlenecks that contribute to an
increase in potential growth; or a gradual deepening of local capital
and credit markets to support the onshore finance-ability of the
government's borrowing requirements.
WHAT COULD CHANGE THE RATING--DOWN
The following factors could lead to a downgrade: Sustained loss
of inflation control and monetary stability; or a large shock to
the country's fiscal, debt and foreign currency reserve position,
derived, for instance, from policy mismanagement, or
some other domestic political shock, which results in a deep deterioration
of resident and investor confidence.
METHODOLOGY
The principal methodology used in this rating was Sovereign Bond Ratings
published in September 2008. Please see the Credit Policy page
on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
Although this credit rating has been issued in a non-EU country
which has not been recognized as endorsable at this date, this credit
rating is deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 30 April
2012. Further information on the EU endorsement status and on the
Moody's office that has issued a particular Credit Rating is available
on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
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the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Christian de Guzman
Asst Vice President - Analyst
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
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Thomas J. Byrne
Senior Vice President - Regional Credit Officer
Sovereign Risk Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Moody's upgrades Indonesia's sovereign rating to Baa3; outlook stable
