Bloomberg News

S&P Lowers Indonesia’s Outlook to Stable on Stalled Reforms

May 02, 2013

Standard & Poor’s revised its rating outlook on Indonesia’s debt to stable from positive, saying a stalling of reform momentum and a weaker external profile have reduced the chance of an upgrade over the next 12 months.

S&P ranks Indonesia at its highest junk level of BB+. The company didn’t follow Fitch Ratings Ltd. and Moody’s Investors Service when they restored Southeast Asia’s largest economy to investment grade in December 2011 and January 2012, respectively.

“Slow progress in improving critical infrastructure, along with legal and regulatory uncertainties and bureaucratic obstacles, detract from Indonesia’s growth potential, thus delaying poverty reduction and economic development,” S&P said in an e-mailed statement today. “Political considerations related to next year’s parliamentary and presidential elections appear to increasingly shape policy formulation.”

Indonesia’s government will only reduce fuel subsidies after the state budget is revised to include compensation programs for the poor, which will probably be completed this month, President Susilo Bambang Yudhoyono said April 30. Without a reduction, the cost of maintaining the subsidies may rise to 297.7 trillion rupiah ($31 billion) this year from the current target of 193.8 trillion rupiah, he said.

The yield on the 10-year government bonds rose one basis point, or 0.01 percentage point, to 5.52 percent as of 3:38 p.m. in Jakarta, the highest level since April 11, prices from the Inter Dealer Market Association show. The rupiah, which was little changed before the S&P announcement, fell 0.1 percent to 9,744 per dollar.

S&P said it may raise the country’s rating if the fuel reforms are finalized, the state budget is improved, or if structural reforms boost economic growth. The assessment may be lowered “if renewed fiscal or external pressures are not met with timely and adequate policy responses,” S&P said in the statement.

To contact the reporter on this story: Yudith Ho in Jakarta at yho35@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net


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