Indonesia economy remains strong

The international rating agency Standard and Poor`s (S&P) has recently downgraded its ratings outlook on Indonesia`s debt but Indonesian officials are convinced it will not significantly affect the country`s economic performance.

"This is the S&P ratings outlook it issues based on its judgment. We also have our own judgment where Bank Indonesia (BI/the central bank) is of the view that Indonesia`s economy remains secure," BI Deputy Governor Halim Alamsyah said.

Deputy Finance Minister Mahendra Siregar concurred Halim`s, saying that Standard & Poor`s downgrade of its ratings outlook on Indonesia`s debt will not affect foreign investors` interest, particularly in the security sector.

"I think the S&P`s downgrade of its outlook on Indonesia`s debt will not significantly affect bonds market because businesses in world today are in liquidity surplus and they need instruments for investment," Mahendra said.

After all, Indonesia`s economic fundamentals remain in good control, so that the country`s economy will remain to grow although Standard and Poor`s (S&P) has downgraded its ratings outlook on the country`s debt from BB+ positive to BB+ stable, Halim Alamsyah said.

However, S&P said Indonesia was still able to balance its weak policies and external pressures with strong growth prospect, conservative fiscal policies and relatively good debt management.

It said that Indonesia still maintained relatively controlled debt and fiscal management with an estimated debt-to-gross domestic product ratio of 22 percent in 2013l.

"Our economic fundamentals are not that bad. Global economy, in Asia in particular, has shown improvement, the performance of our exports have also improved slightly," said Halim

He said that Indonesia`s economy would remain strong in the long run. There would be no many fundamental changes. Banks which served as a yardstick of stability are also in good conditions.

"There is no problem. Banks have good liquidity and capital. Non-performing loans are under control and various financial factors are also good," Halim noted. Inflation is expected to slightly increase but it is caused by speculative factor.

Actually, most bankers in Indonesia are optimistic the country`s economy would grow strongly in 2013 despite global uncertainties.

According to a survey by Price Waterhouse Coopers (PwC) Indonesia, 87 percent of respondents said the country`s economy would post stable growth with moderate inflation in 2013.

Chairman of PW Indonesia Jusuf Wibisana said on Tuesday most Indonesian bankers expressed optimism with signals of US economic recovery.

He said that prices of food commodities which are beyond the control of monetary factor could also be taken under control so that the temporary price hikes would not stay long. With this condition, the bank Indonesia official said, the S&P should have given Indonesia an investment status similar to that provided by Fitch and Moody`s rating agencies.

"There are three rating agencies which provided investment grade status. Moody`s and Fitch have provided us with the investment grade. But I do not know the reason of S&P for not giving us the investment grade. I think we should have obtained the investment grade," he said.

Actually, most bankers in Indonesia are optimistic the country`s economy would grow strongly in 2013 despite global uncertainties. 

Chairman of PW Indonesia Jusuf Wibisana has said most Indonesian bankers expressed optimism with signals of US economic recovery.

Standard Chartered Bank economist Fauzi Ichsan said that the S&P lowered its rating of Indonesia`s debt because the government had aired discourses on its plan to lift the prices of subsidized fuels since in the last 12 months but until now it had not yet realize it.

The Indonesian government is planning to issue a policy of raising the prices of its subsidized fuel oils. Its plan to raise the price has be made sometime in the past but until now it has not yet realized which is why the S&P downgrades its ratings outlook. 

The government said this week it would soon announce the price hikes after the House of Representatives (DPR) approved its draft 2013 revised state budget this week.

In the meantime, Schneider Siahaan, the director of Debt Portfolio Strategy Affairs of the Directorate General of Debt Mangement of the Ministry of Finance said the S&P ratings outlook downgrade on Indonesia`s debt would not trigger outflow of foreign capital.

He said that foreign investors were now looking for new bond instruments which offered competitive yields amid the global economic gloom. Indonesia is one of the countries which meet their need.

"Up to now, the inflow of foreign investment is still taking place and this makes us optimistic with the present (investment) condition," Schneider said.

Moreover, the S&P could just revise upward again its ratings outlook on Indonesia if the government already raised subsidized fuel oil prices. 

According to Fauzi Ichsan, increase in subsidized fuel prices will likely lead Standard & Poor`s (S&P) to upgrade its rating of Indonesia`s debt.

"If the government raises the prices of subsidized fuels, the S&P will also raise Indonesia`s debt rating," said Fauzi Ichsan in a seminar on Macroeconomic Policies for Sustainable Growth with Equity in East Asia on Thursday.

The international rating agency has downgraded its ratings outlook on Indonesia debt from positive to stable because the government has yet to realize its plan to increase subsidized fuel oils.

He said that the S&P lowered its rating of Indonesia`s debt because the government had aired discourses on its plan to lift the prices but until now it had not yet realized it. 

As a result the trade sector inclined to be cautious triggering increases in the prices of food commodities and inflation

Source: ANTARA