December 21, 2017 / 2:49 AM / a year ago

Fitch upgrades Indonesia's rating to BBB, says economy resilient to shocks

JAKARTA, Dec 21 (Reuters) - Fitch Ratings has upgraded Indonesia’s credit ratings by a notch to their second lowest investment grade, saying the direction of macroeconomic and monetary policies has made Southeast Asia’s largest economy resilient to external shocks.

The rating was raised to BBB from BBB-, with a stable outlook, and placed Fitch ahead of the two other major ratings agencies, S&P Global Ratings and Moody’s Investors Service.

Fitch said Indonesia’s resilience to external shocks has steadily strengthened in the past few years on the back of macroeconomic policies that have been geared toward maintaining stability.

“Monetary policy has been sufficiently disciplined to limit bouts of volatile capital outflows during challenging periods,” the ratings agency said in a statement. “Macro-prudential measures have helped curb a sharp rise in corporate external debt, while financial deepening has coincided with improved market stability.”

It said the focus on macro stability is also evident in credible budget assumptions in the past few years.

Investors welcomed the news, with the rupiah up 0.2 percent in early trading and the benchmark stock index rising as much 0.8 percent.

Fitch in December 2011 restored Indonesia’s sovereign rating back to investment grade after nearly 14 years, while S&P’s made its much awaited decision to investment grade in May this year.

“This (Fitch) upgrade will become a good capital for Indonesia in entering 2018 to attract more foreign and domestic investment, both in real sectors and portfolio,” said Luky Alfirman, head of Finance Ministry’s financing and risk management office.

Over the past three years, President Joko Widodo’s government has focused its efforts on cutting public spending, reducing investment bottlenecks and boosting the tax take through a successful tax amnesty programme.

Yet, Fitch also cautioned that the government’s revenue intake is “very low” and that the economy remained hamstrung by some structural weaknesses.

“Indonesia’s economy continues to exhibit some structural weaknesses, notwithstanding recent improvements from reform implementation, and is less developed on a number of metrics than that of many peers.”

Momentum in the economy has improved slightly this year thanks to a rebound in exports, but tepid private consumption has hampered policy makers’ efforts to lift growth well above the annual pace of 5 percent. (Reporting by Fransiska Nangoy; Editing by Shri Navaratnam)

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