JAKARTA (TheInsiderStories) – International rating agency Standard & Poor’s Global Ratings (S&P) stated that Indonesia’s sovereign outlook remains positive despite the negative trend of global volatility market.
“The reason for better assessment of the sovereign rating despite negative trend is because we see a lot of improvement in investment, which gives investors a lot of confident,” said Kim Eng Tan, S&P’s senior director for sovereign ratings Tuesday (13/3).
S&P’s finally upgraded Indonesia to investment grade in May last year, sending the rupiah and the stock market soaring, while Fitch raised its ratings for Indonesia a notch above its lowest investment grade in December.
Foreigners bought Asian government and corporate bonds worth US$9 billion in net value in January, the highest in more than four years, data from central banks and bond market associations in India, Indonesia, Thailand, Malaysia and South Korea showed.
Furthermore, S&P said it does not expect a strong reform drive ahead of 2019 elections, otherwise, the agency expects the ease of monetary policy from Central Bank, which will help rejuvenate private sector’s expansion.
However, S&P warns The Fed’s decision and U.S-China’s trade war are likely to make the global financial market to remain volatile, which may result in suppressing the Asian regional currencies in risk.
“There are no guarantees especially given uncharted quantitative easing exits. But Indonesia’s external position remains strong,” said S&P Economist for Asia Pacific Vincent Conti.
Risk on SOE’s Finance Portfolio
S&P also warns the tension on the balance sheets of the Indonesian state-owned enterprises (SOEs), involving in the government-led infrastructure projects. Their balance sheets seem to be more exposed to the next earnings downcycle than in the previous downturn
“SOEs, especially those working in power and construction, have extensively borrowed in order to match the government development plans, causing their balance sheets to become substantially weakened,” said S&P Senior Director Corporate Rating Xavier Jean.
If companies continue to raise investments at the current pace, they could be forced to stop all investment in five years to control their finances, renegotiate their debt or ask for recapitalization from the government, Jean added.
The debt that these companies take would also affect ratings of Indonesia’s sovereign debt and the banking system from which they borrow, although at this point it would not negatively affect the government finance.