Jakarta. Standard & Poor’s expects little improvement in Indonesia’s sovereign credit rating in the near future, as the credit rating agency waits for more concrete results from President Joko Widodo’s economic policy reforms.

Standard & Poor’s has maintained a BB+ or “neutral” rating on Indonesia’s sovereign credit, continuing its stance as the only one among the big three ratings agencies that has not yet placed Indonesia at investment grade.

BB+ is one notch below investment grade.

The two other agencies, Fitch Ratings and Moody’s Investor Service, have both maintained investment-grade ratings for Indonesia’s sovereign credit for nearly three years now.

Kim Eng Tan, Standard & Poor’s senior director of sovereign and international public finance ratings for Asia Pacific, said the agency was unlikely to increase its sovereign rating on Indonesia to investment grade anytime soon since any lasting effects of the government’s recent policy reforms — such as the fuel subsidy cut at the start of the year — had yet to be seen.

“Indonesia is at a stage where it needs more investments to achieve a higher level income which is going to support the sovereign rating in the long run. However, it is at the stage where it also lacks domestic savings, relying more on external capital,” Tan said.

“This can be offset — and therefore, Indonesia’s sovereign rating could be higher — if investors perceive that the policy environment is relatively stable.”

The Joko administration has pledged to improve the investment climate in Indonesia in hopes of attracting more investors and boosting annual growth in gross domestic production to 7 percent by the end of Joko’s first term in 2019.

Some of the efforts include the long-awaited fuel subsidy cut, as well as a one-stop licensing service launched in January this year by the country’s investment coordinating board, or BKPM, which aims to book Rp 519.5 trillion ($40 billion) in total investment this year — with more than 60 percent expected to come from foreign investors.

Still, Tan stressed that the ratings agency remained skeptical about any lasting effects from the government’s reform efforts in the near future.

“The policy setting is still a bit uncertain,” he said.

“We need time to see if the changes persist. At this stage, we just think more can be done to stabilize the external pressures,” he added.

Tan noted that the government must maintain a momentum of effective implementation as seen with the fuel subsidy cut in other key policy reforms, such as labor laws and land acquisition.

“The important thing is to show results of the policy implementation. In this sense, the bigger the reform, the clearer the signal that this government means business,” he said.

Tan also said that investor confidence in the government have begun to wane over the past few months as the president begins to face increasing political pushback, such as his controversial appointment — and the subsequent cancellation — of a police chief.

GlobeAsia

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Source: The Jakarta Globe