Oct. 26 (Bloomberg) -- Indonesia’s sovereign credit outlook is improving as inflation eases, even as Southeast Asia’s largest economy remains vulnerable to volatile global investor confidence, Fitch Ratings said.
“Inflation has been trending down, but investor risk appetite has, if anything, grown more volatile,” said Andrew Colquhoun, Fitch’s Hong Kong-based head of Asia-Pacific Sovereigns. “The global backdrop remains the key risk for Indonesia’s economy. Nonetheless, the sovereign credit profile continues to grow more resilient, warranting the positive outlook” assigned to the country’s ratings, he said.
The decision by Fitch to raise Indonesia’s credit rating outlook to positive in February was based on falling government debt, rising official reserves and the economy’s resilience during the global financial crisis, Colquhoun said in an e-mail yesterday. Risks noted at the time included “relatively high” inflation and the threat of short-term foreign capital outflows, he said.
Indonesia is one step away from its first investment-grade credit rating in more than a decade, as President Susilo Bambang Yudhoyono targets growth of as much as 6.6 percent on average through the remainder of his term ending in 2014. The country avoided the economic contraction that neighbors Singapore, Malaysia and Thailand suffered during the global economic slump because it’s less dependent on exports.
Fitch rates the country’s local and foreign-currency debt BB+, one step below investment grade, while Moody’s Investors Service raised the nation’s rating in January to the corresponding grade of Ba1. In April, Standard & Poor’s increased Indonesia’s long-term foreign-currency rating one level to BB+ from BB, with a positive outlook. The rating is also one level below investment grade.
“Indonesia’s way to reach investment-grade rating is still on track,” Rahmat Waluyanto, director general of the Ministry of Finance’s debt management office, said in Jakarta yesterday. “So far, we don’t see any significant impact from the global slowdown to the domestic economy.”
Consumer prices in Indonesia rose 4.61 percent in September from a year earlier, after climbing 4.79 percent in August. Inflation has eased from 7.02 percent in January.
--Editors: Stephanie Phang, Matthew Oakley
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