Fitch Upgrades Indonesia Debt Rating to Decade High

Jan. 25 (Bloomberg) -- Fitch Ratings upgraded Indonesia’s long-term foreign and local-currency credit ratings to the highest level since the Asian financial crisis, citing the economy’s resilience to the global crisis and better finances.

The ratings were raised to BB+ from BB, and are now one level below investment grade, the company said in an e-mailed statement today. The outlook on both ratings is stable, it said.

“The rating action reflects Indonesia’s relative resilience to the severe global financial stress test of 2008- 2009, which has been underpinned by continued improvements in the country’s public finances, a fundamental sovereign rating strength, and a material easing of external financing constraints,” Ngiam Ai Ling, a Fitch director of Asian sovereigns, said in the statement.

Indonesia, which needed a bailout from the International Monetary Fund during the 1997-98 Asian financial crisis, avoided following the world’s largest economies and neighboring countries into a recession last year. The Fitch upgrade comes after the government this month sold $2 billion of 10-year bonds at a higher yield than the Philippines.

“Fitch’s rating move will increase the attractiveness of Indonesian assets,” said Eric Alexander Sugandi, a Jakarta- based economist at Standard Chartered Plc. “Indonesia must attract more foreign investors to accelerate economic growth.”

Moody’s, S&P

Holders of Indonesian debt, including Aberdeen Asset Management Plc and Vegagest SGR SpA, have said the country would need to offer higher yields as a rally in emerging-market bonds slows after the biggest gains in six years.

Government bonds rose after the Fitch upgrade. The yield on the 11 percent note due November 2020 fell four basis points to 9.68 percent, according to midday prices at the Inter Dealer Market Association. A basis point is 0.01 percentage point and bond yields move inversely to prices.

Moody’s Investors Service said on Jan. 21 its Ba2 rating on Indonesia remains stable, while Standard & Poor’s raised the outlook on its BB- rating for the country to positive on Oct. 23. S&P’s rating is three levels below investment grade, and Moody’s is two levels less than investment grade.

The last time Fitch ranked Indonesia’s foreign-currency rating BB+ was in early January 1998. Before today, Indonesia’s local-currency long-term debt was last rated BB+ in April 1999.

Political Boost

Southeast Asia’s biggest economy avoided the global recession following nine interest rate cuts by the central bank and after President Susilo Bambang Yudhoyono’s re-election in July boosted confidence he will maintain policies that have helped the economy expand more than 6 percent in the two years to 2008.

Fitch’s rating upgrade reflects Indonesia’s economic resilience and an improving balance of payments, Bank Indonesia Deputy Governor Hartadi Sarwono said in Jakarta today. Indonesia’s foreign-exchange reserves rose to $69 billion as of Jan. 22, he said.

“There is fiscal stability for the authorities to embark on an ambitious agenda to tackle longer-term developmental issues, such as addressing infrastructure constraints and investment promotion as well as raising industrial and export competitiveness,” Fitch’s Ngiam said.

President Yudhoyono pledged to double infrastructure spending to as much as $140 billion in his second five-year term until 2014 to help boost economic growth.

Bank Indonesia forecasts the economy will expand as much as 5.5 percent this year from an estimated 4.3 percent in 2009. Indonesia may grow an average 6.6 percent annually over the next five years, President Susilo Bambang Yudhoyono said Jan. 4.