"JCR’s upgrade on Indonesia’s rating at BBB+/stable outlook reflects the rise in confidence among international stakeholders in the resilience of the Indonesian economy amidst global economic uncertainties," Governor of Bank Indonesia, Perry Warjiyo, noted in a statement in Jakarta on Monday.
The BBB+/stable outlook (investment grade) is the highest rating level ever attained by Indonesia. This achievement mirrors the strong commitment of Bank Indonesia and the government as well as other relevant authorities in maintaining Indonesia's economic stability.
Going forward, Bank Indonesia will monitor domestic and global economic developments in utilizing its room to apply an accommodative policy mix to maintain controlled inflation and external stability as well as to support the economic growth momentum.
According to the JCR, the ratings mainly mirror Indonesia’s solid domestic consumption-led economic growth, restrained budget deficit and public debt, and resilience to external shocks supported by flexible exchange rate and credible monetary policies and accumulation of foreign exchange reserves.
Several factors support Indonesia’s sovereign credit rating upgrade.
First, among the reform agenda, infrastructure development has continued to progress faster than the JCR’s expectations. Second, the government has continued to implement fiscal expenditure reforms and curtail budget deficits, with adherence to restraining fuel subsidies. JCR views that Indonesia’s economic and fiscal bases have been strengthened.
The third factor pertains to intensifying efforts to address long-term challenges, including simplification of regulations through a plan to issue the “Omnibus Law” to facilitate foreign direct investment and the development of infrastructure and human capital. Fourth, the Jokowi administration's political base has been reinforced, thereby further strengthening the momentum of economic policy, he remarked.
The JCR views that infrastructure development, which the first Joko Widodo administration started as its top priority in October 2014, has been making steady headway.
The JCR noted that the second Joko Widodo administration clarified its stance to further bolster its reforms by defining a five-priority agenda: (i) infrastructure development, (ii) human resource development, (iii) regulatory simplification through the issuance of the Omnibus Law, (iv) bureaucratic reforms and (v) economic structural reforms aimed at reducing the country's dependence on natural resources. In particular, the Omnibus Law, yet under preparation, is an ambitious effort to integrate the amendment of over 80 laws that pose a hindrance to investment.
Moreover, Bank Indonesia is viewed as having responded to the knotty issue of striking a balance between maintaining external stability and sustaining domestic economic growth momentum through accommodative monetary and macroprudential policies, further strengthened the payment system policy and financial market deepening, as well as coordinated with the government and other relevant authorities.
Since the start of 2019, Bank Indonesia has been seeking to prop up credit supply by banks through a combination of consecutive policy rate cuts and relaxation of macroprudential policies.
Indonesia’s fiscal soundness has been maintained, as the central government debt remains restrained to about 30 percent of the gross domestic product (GDP). JCR considers that the Joko Widodo administration has bared fairly feasible plans to cut the fiscal deficit to 1.76 percent of the GDP in its 2020 budget and to hold down the central government debt to below 30 percent of the GDP under its Medium-Term Fiscal Framework.
Furthermore, while continuing to face the need for financial deepening, Indonesian banks have been retaining their soundness, with their capital adequacy ratio and NPL ratio, standing at 23.66 percent and 2.77 percent, respectively, at the end of November 2019.
The JCR had earlier revised the outlook on Indonesia’s sovereign credit rating, from Stable to Positive, and affirmed Indonesia’s BBB (Investment Grade) issuer rating on April 26, 2019. Related news: JCR's revised outlook of Indonesia indicates solid economic growth: BI
Related news: R&I affirms Indonesia's sovereign credit rating is stable
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