Jakarta. S&P Global Ratings warned on Wednesday that the finances of Indonesian real estate developers and state firms might deteriorate in 2019 due to risks rooted in general elections and further depreciation of the rupiah.
Analysts with the rating agency told a media webcast that they do not expect a wave of defaults like ones seen in past financial crises.
But they said there are sectors with pockets of weakness that may fare worse with the rupiah expected to weaken next year.
The agency also cut its 2019 gross domestic product growth outlook to slightly above 5 percent from 5.5 percent, citing expectations of higher inflation and tighter monetary policy.
In recent weeks, the rupiah has pared some of its 2018 losses, but it is still down about 7 percent against the dollar.
Xavier Jean, S&P senior director of corporate ratings, said there will be some sectors "where you could see some defaults, real estate being one" and he also cautioned about manufacturing and consumer companies with most inputs priced in dollars.
Credit risks were building for nearly $15 billion in debt with a currency mismatch for listed companies in the real estate, transportation and manufacturing sectors plus some individual issuers in other sectors, S&P said.
The legislative and presidential elections are scheduled for April.
That is making things harder for real estate developers, Jean said, as some potential property buyers are now taking the kind of wait-and-see approach seen during previous election cycles.
Price ControlsPresident Joko "Jokowi" Widodo slapped price controls on key commodities, including fuel and electricity, in March in what analysts said was a pre-election shift towards more populist policies, though officials maintain these were imposed to keep the inflation rate stable.
Such price controls hurt the balance sheets of state firms whose finances have already weakened due to extensive borrowing to match the government's aggressive infrastructure plan, S&P said.
The agency estimated that controls on pump-prices mean that state energy firm Pertamina must "absorb lost profits" that S&P estimates at between $1.5 billion and $2 billion in 2018.
S&P expects the government to keep the measures in place until at least mid-2019, though these may then might be lifted due to pressure on state companies' balance sheets.
But once lifted, inflation will likely jump, affecting household spending and economic growth, S&P said, noting that Bank Indonesia may raise interest rates even more.
The central bank has raised interest rates six times by a total of 175 basis points since May.