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Rating Action:

Moody's assigns (P)Baa2 rating to Indonesia's new shelf programme and definitive Baa2 rating to planned drawdowns under the programme

17 Apr 2018

Singapore, April 17, 2018 -- Moody's Investors Service, ("Moody's") has today assigned a provisional foreign currency senior unsecured programme rating of (P)Baa2 to the new shelf programme by the Government of Indonesia.

The shelf programme was filed with the Securities and Exchange Commission (SEC) in the U.S. under a shelf registration process and the overall amount of the new securities that can be issued under the shelf is USD10 billion.

The rating mirrors the Government of Indonesia's long-term issuer rating of Baa2 with stable outlook.

Concurrently, Moody's also assigned a Baa2 rating to the planned USD and EUR-denominated drawdowns under the programme, with maturities of 10 and 7 years, respectively. These ratings are based on the terms and conditions disclosed on 17th April 2018.

RATINGS RATIONALE

According to the base prospectus available to Moody's at the time of the rating committee, the notes to be issued under the new Shelf programme will constitute direct, unconditional and unsecured obligations of the Government of Indonesia (the issuer), and will rank pari passu among themselves and at least pari passu in right of payment with all other present and future unsecured obligations of the government.

The proceeds of the notes to be issued under the programme are intended for general financing purposes or general budgetary purposes.

Indonesia's Baa2 rating is underpinned by policy emphasis on macroeconomic stability that increases its resilience to shocks. The sovereign's credit profile is supported by narrow fiscal deficits and low government debt ratios. The large size of its economy and healthy and stable growth prospects act as credit supports. Credit challenges include low revenue mobilization, and a reliance on external funding.

The stable outlook reflects balanced risks at Baa2. The stable outlook incorporates downside risks from political challenges to the implementation of further broad economic, fiscal and regulatory reforms. While we expect effective reforms to proceed relatively slowly, further delays or reversals compared with our expectations could happen, especially - although not only - ahead of next year's elections, when reforms involve increasing competition with a negative impact on incumbents.

The stable outlook also takes into account upside risks from a potential improvement in competitiveness as a result of effective announced and planned reforms.

The present administration has passed various policy packages targeted primarily at improving the environment for investment. The effectiveness of these policies in improving the attractiveness of Indonesia as a place to invest has yet to become clear. Policy-makers' perseverance in this direction is key to ensuring that GDP growth moves towards the country's potential levels.

WHAT COULD MOVE THE RATING UP/DOWN

The stable outlook on Indonesia's issuer rating indicates that rating changes are unlikely in the foreseeable future.

Over time, indications that fiscal policy measures can durably and significantly raise government revenue would put upward pressure on the rating. Higher revenue would enhance fiscal flexibility and provide more direct financial means for the government to address large social and physical infrastructure spending needs. An upgrade would also potentially result from materially stronger growth potential, commensurate with the country's population growth and income levels, including through a deepening of financial markets and improved competitiveness.

Downward pressure would arise if: 1) evidence built up that the strengthening of Indonesia's policy framework and institutions is on hold or reversing; 2) Moody's concluded that the prospects of some broadening of the revenue base over the medium term are very limited, indicating limitations to policy effectiveness and posing continued constraints to economic growth; and/or (3) SOEs' financial strength materially worsened pointing to a rising likelihood of crystallization of material contingent liabilities on the government's balance sheet.

GDP per capita (PPP basis, US$): 11,717 (2016 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 5% (2016 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 3% (2016 Actual)

Gen. Gov. Financial Balance/GDP: -2.5% (2016 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: -1.8% (2016 Actual) (also known as External Balance)

External debt/GDP: 34.3% (2016 Actual)

Level of economic development: High level of economic resilience

Default history: No default events (on bonds or loans) have been recorded since 1983

On 17 April 2018, a rating committee was called to discuss assigning a provisional rating to the new Shelf programme of the Government of Indonesia. The committee also discussed assigning definitive ratings to the two planned drawdowns. The main points raised during the discussion were: The terms and conditions of the notes to be issued under the shelf programme and the conclusion that these notes would rank pari passu with other senior unsecured debt obligations of the Government of Indonesia.

The principal methodology used in these ratings was Sovereign Bond Ratings published in December 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Anushka Shah
VP-Senior 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
Client Service: 852 3551 3077

Marie Diron
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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