Moody's says Indonesia's Ba2 rating remains stable

Moody's Investors Service says -- in a new sovereign report on Indonesia -- that the outlook for the country's Ba2 rating remains stable.


"Indonesia's Ba2 rating was upgraded in September 2009, reflecting fundamental and ongoing improvements in its credit prospects," says Aninda Mitra, Moody's sovereign analyst for Indonesia.

"The country's underlying credit improvements reflect growth rates and a debt burden that are projected to be more favorable than other Ba-rated countries over coming years," says Mr. Mitra

"Such developments are likely to be supported in turn by ongoing flexibility in the country's economic policy framework and the resilience of its domestic economy, based on a low level of economic openness, a reasonably well diversified economy, low systemic leverage, and favorable demographics" adds Mitra.

"The momentum in reform will likely slow on account of the current parliamentary inquiry into the appropriateness of the Bank Century bailout, and which has implicated key ministers in the recently re-elected Yudhoyono administration," says Mitra.

"However, these risks will take time to play out and they are not expected to derail the macroeconomic policy framework, which had ably withstood the impact of recent elections, as well as several large external shocks," says Mitra.

"The recent moderation in headline consumer price inflation to below the central bank's targeted range of 4.5% +/- 1% and an appropriate stance in monetary policy support near-term price expectations," says Mitra, adding, "But, the postponement of power tariff adjustments poses risks to the medium-term inflation outlook."

According to Mitra, sovereign credit improvements are contingent on greater foreign currency reserve adequacy against unexpected shocks; and a stronger foreign currency reserve buffer could also crowd in greater and more stable inflows of foreign capital and anchor domestic monetary confidence.

"Structural reforms -- which could support medium-term price expectations, durably improve the financial fundamentals of state-owned-enterprises, and deepen domestic capital markets -- would also sustain the country's credit improvements," said Mitra.

"The stable outlook incorporates the recent increase in political uncertainty, and reflects the mix of relatively healthy growth prospects and the likelihood that the policy framework will maintain recent improvements in key credit metrics," says Mitra.

The last rating action on Indonesia was taken on 16 September 2009, when Moody's upgraded the sovereign bond rating to Ba2, from Ba3.

The principal methodology used in rating the government of the Republic of Indonesia is Moody's Sovereign Bond Methodology, published in September 2008 which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.