S&P lifts Indonesia ratings on improved governance

SINGAPORE - Standard & Poor's has revised its outlook on the long-term sovereign credit ratings of Indonesia to positive from stable – and affirmed its 'BB+' long-term and 'B' short-term sovereign credit ratings and 'axBBB+/axA-2' ASEAN regional rating scale on the country.

“Our outlook revision reflects our view of Indonesia's improved policy credibility stemming from initiatives to bolster monetary and financial sector management as well as economic performance,” S&P says. “We expect these actions to improve Indonesia's growth prospects and external resilience.”

S&P says its ratings on Indonesia balance the country's low per capita income and developing policy and institutional settings against the improved credibility of its monetary policy, buoyant economic growth, and sound public finances.

Following its election in July 2014, the new Indonesian Democratic Party of Struggle (PDI-P) administration has been moving to improve fiscal flexibility by reducing fuel subsidies (earmarking the proceeds for infrastructure investment) and boosting revenue collection, S&P says.

Other initiatives include strengthening land acquisition laws, streamlining investment licensing, and reforming tax incentives, particularly for foreign investors.

Governance has improved through tighter rules for procurement and licensing, expanded financial interest disclosure for Members of Parliament, and Ministry appointments based on merit. “The Administration has directed other reforms at deepening Indonesia's capital markets and strengthening its financial system,” S&P says.

The ratings agency expects GDP to expand by 5.5% (4.4% in GDP per capita terms) in 2015, supported by high public sector investment (about 5.3% higher). “Our projection is for Indonesia's GDP to average 5.9% over 2016-2019 (5% in GDP per capita terms),” S&P says. www.standardandpoors.com (ATI).