Standard and Poor’s (S&P) has today (April 23, 2012) affirmed its 'BB+' long-term and 'B' short-term sovereign credit ratings on the Republic of Indonesia with the positive outlook. In the press release today, S&P stated that the rating on Indonesia balances institutional and economic constraints with a moderately strong fiscal, external, and monetary profile. The positive outlook signals the potential for an upgrade if the country's growth prospects improve further and financial markets deepen with steadier policy implementation.
Agost Bernard, S&P Lead Analyst for Indonesia mentioned; the ratings are supported by low reported central government fiscal deficits, declining public sector debt burden, strengthening external liquidity, and resilient economic performance. Meanwhile, the low per capita income, structural and institutional impediments to higher economic growth, still-high private sector external debt, and shallow domestic capital markets are mentioned as the constraint.
S&P stated that the abandonment of a planned electricity tariff rise, the inability to implement fuel subsidy cuts despite rising oil prices, and a host of proposed or actual policy measures in industry and trade, point to a rising level of policy uncertainty.
“The macro and financial stability is thus far well preserved and the domestic economic is growing with accelerating pace supported by a more balanced economic structure, enabling large employment absorption. The Governor ensures that the economy is moving on the right path and will move forward” said The Governor of Bank Indonesia, Darmin Nasution.
In the external front, Indonesia’s balance of payments is still in a healthy position with a relatively manageable current account deficit and a steady growth of FDI inflows. The total external debt to GDP ratio is in the downward trend and stood at 26.5% by the end of 2011. Bank Indonesia also view that private sector external debt does not too seriously threat the economy since 36% of its total originated from the affiliated companies.
Bank Indonesia is well aware of the constraints on the structural issues and believes that the improvement process is ongoing and will generate the market optimism on Indonesian economic outlook. Accordingly, Bank Indonesia and the government will undertake various measures to mitigate the potential risk both from internal and external sector. Furthermore, we will continuously maintain the policy to be consistent with macroeconomic outlook so that the higher level of economic growth can be achieved sustainably.
Jakarta, 23 April 2012
Office of The Governor
Difi A. Johansyah