Wednesday, March 10, 2010
Sri Mulyani Optimistic on Upgrade of Sovereign Debt
Source: Jakarta Globe
Dion Bisara

Finance Minister Sri Mulyani Indrawati said Indonesia could achieve a rating of "investment grade" for its sovereign debt within a year, considering the healthy state budget, the country's performance during the global financial crisis and the projection for a strong balance of payments.

"We can achieve it in one or at the most two years," she told a gathering of foreign journalists at the Finance Ministry on Tuesday night. "Actually, I'm expecting that it would be less than one year."

Sri Mulyani said capital inflows had remained strong over the past six months, despite the moderate political drama over the Bank Century bailout, thanks to the country's strong economic performance during the global downturn.

She said the government had been communicating extensively with international ratings agencies about what could be done to achieve an investment-grade rating.

"Most of them said Indonesia's budget, in terms of quality and health, is above the average of emerging countries. We have a very healthy budget," she said.

However, Sri Mulyani said the agencies have expressed concerns about the country's balance of payments, which is vulnerable to fluctuating global commodity prices. But she expressed optimism that both the current and capital accounts would grow robustly this year.

"Of course, we have to be very careful about how sustainable this trend is, especially the current account. When the domestic economy is moving faster, it is usually accompanied by the imports of raw materials and machinery or capital goods," Sri Mulyani said.

The government's debt is still rated below investment grade by the three major international ratings agencies - Fitch Ratings, Moody's Investor Service and Standard and Poor's. The ratings reflect the perceived risk in lending to the government, so an upgrade to investment grade would enable the government to borrow at lower interest rates.

Indonesia's resilience amid the global downturn and its management of the budget led Fitch to upgrade its sovereign debt in January to "BB+" from "BB", with a "stable outlook," just one step below investment grade.

Ai Ling Ngiam, Fitch's director of Asia sovereign ratings, confirmed that the agency had concerns about the country's balance of payments.

"Improvements in external finances can help to ease concerns we have over the vulnerabilities of the Indonesia sovereign [debt] on a standalone basis," she said. "However, Indonesia's improvements will have to be measured in totality and against those of its peer group."

"The next rating category of 'BBB's contains a group of stronger-rated sovereigns, which Indonesia will have to measure up to," Ngiam said. That means Indonesia will be compared to the likes of India, China, Brazil and Russia, she said.

A "stable outlook" meant Indonesia has a 50 percent chance of upgrading or downgrading its long-term sovereign rating, Ngiam added.