S&P Ratings: Indonesian Developers Potentially to Downgrade This Year

JAKARTA (TheInsiderStories) – International rating agency Standard & Poor’s Global Ratings (S&P) stated that Indonesia’ Gross Domestic Product (GDP) is considered to be far better due to the investment and infrastructure development. The rapid infrastructure development is good for investment and for economic growth, the agency said.

Kim Eng Tan, senior director for sovereign ratings at S&P, said at Indonesia in 2019-Coping With A Post-election Year in Jakarta on Thursday (05/16), that Indonesia has positive potential from the transfer of investment objectives, in line with global economic situations and the United States (US) monetary policy.

He believes that Indonesia’ sovereign credit fundamentals will remain robust as the exchange rate movements and foreign exchange reserves remain stable.

But he warned, government stepped relying on debt securities than foreign debt could harm Indonesian financial conditions. So far, he noted, investors sentiments relatively stable, thanks to the proactive economic policies.

Indonesian government is considered to implemented a good and appropriate fiscal policy to bring the fiscal more healthy, which is marked by a decrease in the State Budget deficit from 2.51 percent in 2017 to 1.76 percent in 2018.

This reduction in the State Budget deficit is driven by improvements in tax revenues and increased quality of spending. Careful fiscal policy is also indicated by Indonesia’s low debt with a ratio of 29.8 percent to GDP in 2018.

Indonesia targets to become one of the developed countries by 2045 and the economic growth at 7.3 percent at the year, said a minister on Thursday (05/09). The vision makes Indonesia a high-income country with the fifth highest GDP in the world with an average economic growth rate of 5.5-6.0 percent up to 2025 and an average of 7.3 percent in 2045.

National Development Planning Minister Bambang Brodjonegoro said that in order to achieve these big goals, Indonesia must be able to plan sustainable development to create a superior nation in human, industrial, cultural, scientific and technological resources.

There are three scenarios for achieving economic growth in the next five years, namely a baseline level of 5.4 percent, a moderate level of 5.7 percent and a high scenario of 6 percent.

“The target is that in 2045 our economy will grow 7.3 percent,” he said at the opening of the 2020 Government Work Plan in Jakarta.

To achieve this vision, the government will improve the performance of economic sectors that make a major contribution to economic growth. At least there are three strategic steps that will be taken by the government, among others: first, improving the trade balance in the service sector which is still in deficit, such as the services of shipping vessels.

Second, boost the tourism sector to increase foreign exchange inflow into the country. In 2025, the government targets the number of foreign tourists to reach 25-30 million and as many as 73 million foreign tourists by 2045.

Third, diversify export-based production centers with more focus on the development of manufactured products than those that have continued to depend on natural resource products such as coal and petroleum. Strengthening manufacturing products in the food, textile, chemical, pharmaceutical and automotive products sectors will be the government’s main concern, he said.

Finally, the government will reduce the current account deficit (CAD), economic transformation in the fields of industry, agriculture and services.

S&P believes that Indonesia’ economy remains stable amid the weakening global economy. Structural and fiscal reforms carried out by the government together with stakeholders are an effort to maintain the stability of the economy.

“So the Indonesian economy is still believed to remain robust amid the weakening global economy tension,” Kim ended.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com