Indonesia's Rating Raised by Moody's to Decade High

By Wahyudi Soeriaatmadja and Aloysius Unditu

Oct. 18 (Bloomberg) -- Indonesia's credit rating was raised by Moody's Investors Service to the highest in a decade after the government trimmed debt and boosted its currency reserves.

Moody's lifted Indonesia's foreign-currency rating one notch to Ba3, three levels below investment grade, the company said in a statement today. The rating, which was last increased in 2006, hasn't been as high since the 1997-98 Asian financial crisis and now matches that of Vietnam and Turkey.

The upgrade reflects ``the country's track record of fiscal prudence and improvements in its external position,'' Moody's lead sovereign analyst for Indonesia Aninda Mitra said in the statement. The reduction of the government's debt burden is ``creating more fiscal space and enabling a strong policy bias toward sustained increases in developmental expenditure.''

A higher credit rating will help President Susilo Bambang Yudhoyono's government reduce the cost of its proposed dollar- denominated bond sale next year. A lower interest burden will allow the government to spend more on roads and power plants in Asia's third-most populous nation, and lift incomes of the 37 million people who live on less than $18 a month.

``The ratings upgrade means that there is an improvement in Indonesia's macro economy,'' said Winang Budoyo, an economist at PT Bank Lippo. ``It also means that if Indonesia wants to tap debt markets next year, it will be able to get credit cheaper.''

Budget Spending

Indonesia has used only 38 percent of its annual budget in the first eight months of the year, Finance Minister Sri Mulyani said Oct. 3. The International Monetary Fund last week raised its 2007 growth forecast for Southeast Asia's largest economy, which 10 years ago needed an IMF bailout to pay for imports.

Five-year credit-default swaps, which measure the perceived risk of owning the country's dollar-denominated bonds, fell 3 basis points to 121 basis points as of 12:40 p.m. in Singapore, according to prices from Bear Stearns Cos.

``From a debt-management standpoint, the government will continue to rely on domestic sources of funds and gradually reduce its dependence on overseas loans,'' said Rahmat Waluyanto, director general of debt management at the Finance Ministry.

Indonesia's foreign-exchange reserves rose 25 percent to $52.87 billion in September from a year earlier. The central bank expects reserves to rise to $54.4 billion by year-end.

The Jakarta Composite index rose 0.6 percent at 1:30 p.m. in Jakarta, extending its record for an eighth straight day. The rupiah traded at 9,095 against the dollar from 9,105 before the announcement.

`Nothing Surprising'

``While the upgrade is indeed positive, it only confirms what the market has been expecting, nothing surprising,'' said Branko Windoe, head of treasury at PT Bank Central Asia, Indonesia's second-largest financial services company by assets in Jakarta.

The yield on the 10 percent note due July 2017 fell 3 basis points, or 0.03 percentage point, to 9.146 percent as of 11:30 a.m. in Jakarta, according to pricing by PT Bank Central Asia, the nation's second-largest lender.

``While capital has started flowing in, some investors weren't sure about Indonesia's prospects,'' said Purbaya Yudhi Sadewa, chief economist of PT Danareksa Sekuritas in Jakarta. ``The Moody's move will convince them that the fundamentals are good.''

Indonesia's $364 billion economy is expected to grow 6.2 percent this year, the IMF said in an Oct. 11 report. That's higher than an earlier estimate of 6 percent.

Moody's put Indonesia's credit rating under review for an upgrade in August.

To contact the reporters on this story: Wahyudi Soeriaatmadja in Jakarta at o wahyudi@bloomberg.net ; Arijit Ghosh in Jakarta at aghosh@bloomberg.net .