Debt Rating on Indonesia Raised

Standard & Poor’s on Friday raised its foreign currency and debt rating on Indonesia and signalled it could hike it to investment status. The agency lifted the rating on Southeast Asia’s biggest economy to “BB+” from “BB”.
The firm’s credit analyst Agost Benard said it reflected “continuing improvements in the government’s balance sheet and external liquidity, against a backdrop of a resilient economic performance and cautious fiscal management.”
There was a likelihood of an upgrade if inflation is tamed, its external debt burden falls and there is continued balance sheet improvements. He said constraints included Indonesia’s low per capita income, structural and institutional obstacles to higher economic growth, and the country’s relatively high inflation.
“In addition, the country remains vulnerable to external shocks partly because the domestic capital markets are shallow, but this risk has lessened,” Benard said.
Indonesia is one of many emerging economies in the region that are powering out of the global downturn but are growing concerned about huge inflows of speculative funds from overseas looking for stronger investment returns. The country’s economy grew 6.1 percent last year, confirming its position among the top ranks of emerging markets.
But that has led to rising inflation and concerns that the so-called hot money could destabilise the economy. Indonesia needed to be rescued from bankruptcy when it was hit hard by the Asian financial crisis of 1997-1998.
Since then it has won applause for rebuilding its foreign currency reserves, restoring confidence to its banking system and managing the macroeconomic levers of the economy with a steady hand.