But on February 9 Standard & Poor's Ratings Services changed its outlook on the sovereign credit ratings for Indonesia to positive from stable.
"The revision to the outlook on Indonesia's sovereign ratings reflects concerns over risks to the external balance sheet that need to be addressed with greater urgency and importance," says Ai Ling Ngiam, associate director in Fitch's sovereign ratings team in Hong Kong. "The reversal towards a weakening in the current account balance position coincides with a period of heavy public sector amortisation payments.ö
However, S&P gave more credence to President Susilo Bambang YudhoyonoÆs administrationÆs work over the past year to improve IndonesiaÆs standing.
"The outlook revision takes into account the more favorable policy setting that emerged in the wake of significant adjustments in fiscal and monetary policy stance, and the expectation that this will improve deficit and debt ratios further," says Standard & Poor's credit analyst Agost Benard.
Fitch gives credit to SusiloÆs administration for stepping his high-profile anti-corruption drive to eradicate what Indonesians call KKN - corruption, collusion and nepotism. However, it argues more is needed: "Structural reform policies to address infrastructure bottlenecks, to improve the investment climate as well as raise Indonesia's export competitiveness need to be addressed in the near term with greater urgency to reduce further Indonesia's credit risk profile,' says Ngiam.
And many Indonesians argue there has been a downside to the fight against KKN û inertia. As Jakarta-based Eddy Soperano, director, South East Asia, global investment banking for HSBC puts it: ôEfforts to curb corruption have not only been effective, but to a certain extend excessive.
"Public officials and those in state owned enterprises are very hesitant in making meaningful decisions, fearing that they may get themselves into problems at the end of the day.ö He adds that this is evidenced in the banking sector where the likes of Bank Mandiri and Bank Negara Indonesia have experienced a consolidation period with relatively little new business and asset expansions.
Looking ahead, Fitch argues that the resilience of the external position will require accelerated efforts to build sustainable capital inflows û for example more foreign direct investment is needed and the nation needs to stem other capital outflows, which have been persistent in recent years. Otherwise, the agency believes the country could risk an interim rundown in its foreign exchange reserves. Fitch also says a credible monetary and exchange rate policy is needed to reduce the probability of currency volatility, which could quickly worsen the overall external financing position.
But Fitch says that Indonesia's public finances remain a key rating strength. Fitch forecasts the fiscal deficit will stay manageable at below 1% of GDP this year, while the government debt-to-GDP ratio of 41% is lower than the 46% median for the 'BB' rating category.
Indonesia cannot afford too many downgrades -- it hopes to raise Rp 24.9 trillion in net proceeds this year from local rupiah-denominated bonds, overseas dollar-denominated bonds, and Shariah-based sukuk bonds. Indonesia managed to raise a combined total of $2.5 billion from global bond issues in March and October last year.