Indonesia Aspires to S&P Investment-Grade Rating
Jakarta. Indonesia is pinning its hopes on recent infrastructure development reforms and a revamp of fiscal and monetary policies as it aspires to obtain the elusive investment-grade rating from Standard & Poor's Financial Services, a senior minister said on Tuesday (10/05).
S&P is the only major debt ratings agency that still rates Indonesia's sovereign bonds as junk – one level below investment grade. Other major agencies, including Moody's Investors Service and Fitch Ratings, have maintained investment-grade ratings for the country's sovereign credit for more than five years already.
The junk rating prevents Indonesia from attracting most long-term investment funds, such as endowment and pension funds, to help finance the country's state budget and trade deficit. That complicates its efforts to maintain the domestic financial system stability against short-term foreign speculators.
"This year, [S&P] wants to see whether we have done some improvements in economic and state finance management and in central-rural government relations," Finance Minister Bambang Brodjonegoro said in a statement after S&P's annual visit to the State Palace in Jakarta on Tuesday.
According to Bambang, President Joko Widodo said in the meeting that his current focus was on how to accelerate infrastructure development in the country, in an attempt to kick-start economic growth.
The president showed the agency how the country had continued with previously postponed projects such as the Jatigede Dam in Sumedang, West Java, and the Trans-Java toll road.
Joko reportedly asked his administration in a closed meeting a day earlier to make the necessary improvements in the fiscal and monetary sectors as part of the effort to obtain an investment-grade rating from S&P.
"I want the improvements in the [policy] packages to really work in the field," Joko said.
The government has cut fuel subsidies — long criticized by S&P as unproductive spending — in 2014 in a move to make room for a massive infrastructure budget. Also, Bank Indonesia, the country's central bank, changed its benchmark rate to improve transmission of its monetary policy.
Trade Minister Thomas Lembong, who also attended the meeting, said S&P appreciates the government's efforts to boost economic growth and Indonesia's competitiveness against its peers.
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