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Moody's changes Indonesia rating outlook to positive JAKARTA - Moody's Investors Service has changed the outlook to positive from stable on Indonesia's B2 foreign currency country ceiling for bonds, its B3 foreign currency country ceiling for bank deposits, and the Indonesian government's B2 foreign and local currency ratings.

Moody's said that the outlook change was prompted by the continuing improvement in Indonesia's debt ratios, both in terms of foreign currency debt and the government's overall debt position. The ratio of total external debt to current account receipts has improved since the 1997 Asian financial crisis, although it remains high, and the ratio of government debt to GDP has improved steeply in the last few years.
Improved government debt ratios are due to a combination of fiscal policies that have kept budget deficits low, relatively rapid nominal GDP growth, and a strengthening exchange rate, said Moody's. The government now expects a budget deficit of 1.0% of GDP this year and forecasts a balanced position by 2008. As a result, the rating agency expects the government's debt position to continue to improve over the next several years.
While the government's debt position is improving, external debt remains a source of vulnerability, as the ratio of debt to current account receipts is higher than the average for countries in the B2 rating category, said Moody's. The high level of government external debt is somewhat mitigated by its composition, as it is held primarily by official creditors. However, the rating agency said that this factor also introduced some risk, as private creditors could be vulnerable to any future Paris Club rescheduling, something that Moody's said it does not expect in the near future.
Indonesia completed the transition to a democratic government during the course of 2004 and the country is enjoying relative political stability, according to Moody's. The new government appears intent on institutional reforms that will improve the investment environment, including judicial reform and anti-corruption measures. Moody's believes it is too early to assess the success of these efforts, but noted that investment did pick up toward the end of 2004. The government's efforts to increase the level of investment will be critical if it is to attain its goal of more rapid GDP growth over the medium term.
Moody's does not believe that the December earthquake and tsunami had a material impact on the country's creditworthiness, despite the high cost in human lives and infrastructure in Aceh. Although the Paris Club offered a debt moratorium, it does not now appear that the government will accept the offer, relying instead on assistance from the Consultative Group on Indonesia for some of the cost of reconstruction.
Going forward, Moody's said any move to place the ratings on review for upgrade would depend on progress in implementing the reforms that the new government has announced, on the performance of investment, both foreign and domestic, and on export performance resulting from any investment rise.



Posted in Economy @ 18 February 2005 00:01 CET by Jeroen · 'Blog' RSS feed · permalink






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