Moody's upgrades Indonesia's sovereign ratings to Ba2

Moody's Investors Service has upgraded Indonesia's foreign- and local-currency sovereign debt ratings to Ba2, from Ba3. The outlook is stable.
"The upgrade was prompted by the Indonesian economy's relatively strong resilience to the global recession as well as its healthy medium-termgrowth prospects," says Aninda Mitra, a Moody's Vice President and Sovereign Analyst for Indonesia.
"A pick-up in economic activity to its recent rate of 5.5% is expected in 2010, and Indonesia's overall growth dynamic is better positioned to face medium-term global uncertainties than many of its Ba-rated peers, as well as most regional economies," he adds.
"Indonesia's macro-economic management is also improving, and its appropriate policy stance is expected to persist in the foreseeablefuture," says Mitra, adding, "These developments highlight the growing credibility and predictability of government policies, and are expected to ensure macro-economic stability."
Recently concluded elections will return to power the pro-reformincumbent president. According to the analyst, this result will broadly ensure policy continuity and possibly lead to a deepening of policy and structural reforms.
The upgrade was also prompted by an improving credit profile derived fromIndonesia's ongoing policy prudence, structural reforms, and appropriate debt management. Relatively low budget deficits and strong economic growth have loweredIndonesia's general government debt- and private external debt to lower than its peer medians.
Meanwhile, the government's debt affordability is expected to remain stable."Although Indonesia has faced more market volatility than many of its peers, its declining financial indebtedness and the authorities'pro-active and flexible policies provides fundamental credit support,"says Mitra.
"Nonetheless, the need for a strong foreign currency reserve position coupled with a more developed domestic capital market and institutional investor base are assuming greater significance if sovereign creditworthiness is to further improve," he adds.
Systemic risk from terrorist attacks has been contained by the country'sincreasingly effective political institutions and security apparatus. In addition, potential contingent liabilities associated with the banking and state enterprise sector did not significantly threaten thesovereign's credit fundamentals.
In conjunction with this upgrade of the sovereign rating, Moody's has also upgraded Indonesia's foreign currency country ceiling to Ba1 and foreign currency bank deposit ceiling to Ba3. The outlook on these ceilings is stable. The local currency country ceiling of Baa2 and the government's short-term ratings of not-Prime remain unaffected by these actions. Moody's last rating action on Indonesia was taken on 11 June 2009, at which time the outlook on the Ba3 sovereign ratings was changed topositive.