Japan Credit Rating Upgrade: Indonesia is ‘Stable’

Japan Presiden Shinzo Abe (left) shakes hand with President Joko Widodo - Photo by President Office

JAKARTA (TheInsiderStories) – The Japan Credit Rating Agency (JCRA) has upgraded Indonesia’s rating by one notch, revising the outlook to ‘Stable’. The rating agency has also upgraded its country ceiling rating for Indonesia by one notch, to ‘BBB+’.

JCRA was impressed by government efforts, as it presses ahead with structural reforms aimed to promote sustainable growth through reduced dependence on the natural resources sector.

The effect of the reform initiatives has emerged in various aspects in the three years since President Joko Widodo took over the administration.

“First, the investment climate has significantly improved, following the implementation of a series of Economic Policy Packages,” commented Atsushi Masuda, an analyst from JCRA.

JCRA appraises Indonesia as continuing to be highly dependent on mineral resources such as coal. Private investment has been stagnant, particularly in the resources sector, as coal prices have been slipping downward since 2011. Faced with such a situation, the government has implemented a total of 15 Economic Policy Packages, starting in September 2015.

It has brought about significant improvement in the investment environment, through the
deregulation it enforced under those policies. Bank Indonesia has also made a series of policy rate cuts, as the consumer price index stayed within its inflation target range. These measures have attracted private investment, particularly in the non-resources sector, giving a boost to economic growth.

The rating agency also applauded the administration of President Joko Widodo for various efforts to gradually streamline the country’s complex regulatory environment, in order to attract more investment.

JCRA will also closely monitor the procurement of funds from the private sector for infrastructure. There are approximately 245 national strategic projects under consideration, of which 60 per cent are under construction.

In respond to the ratings upgrade, Coordinating Minister of Economic Affairs Darmin Nasution states he expects this will lead other rating agencies to acknowledge improvements that the government has implemented in recent years.

Recently, Indonesia was awarded ‘Investment Grade’ status by three reputable international rating agencies: Moody’s, Standard and Poor’s (S&P) and Fitch Ratings.

Meanwhile, Minister of Finance Sri Mulyani Indrawati hopes that entering the election year, the improvement in the investment climate, will both bolster confidence and encourage consumers to start spending again, after holding onto their money and declining to consume in recent years.

Investment was the second-biggest contributor to Indonesia’s economic growth in 2017. Construction of new office buildings, manufacturing plants, roads and airports, and record-breaking capital injections into various technology startups grabbed national news headlines last year.

“We hope investment can remain steady or increase above 7 per cent, as that will drive confidence in the middle class, especially among those who will see an increase in their purchasing power again,” Sri Mulyani told reporters.

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