Moody’s puts Indonesia on positive outlook: S&P upgrade to come?

JAKARTA – Ratings agency Moody's has revised Indonesia's Baa3 sovereign rating outlook to positive from stable citing Indonesia's reduced vulnerability to external shocks and improved track record of macroeconomic stability.

Commenting on the move, ANZ Bank says it is not surprised because Indonesia's economic fundamentals have improved in recent years.
“The current account deficit has narrowed to 2.1% of GDP from 3.6% in Q3 2013. The rise in commodity prices has bolstered Indonesia's trade surplus. Inflation, which was averaging above 7% between 2013 and 2015, has declined to 3.5% currently,” it says.
“Importantly, policymakers remain committed to fiscal prudence and continue to undertake economic reforms, showing willingness to make the necessary decisions, from implementing the tax amnesty programme last year to the phased removal of electricity tariff subsidies that are occurring this year. 
“Indonesia's greatly improved resilience was put to the test in Q4 2016 amid the global bond selloff and the Trump tantrum.
“Outflows from the Indonesian bond market were short-lived, and inflows resumed in December-January totalling USD2.2bn, even as other Asian markets continued to see outflows.
“Bank Indonesia utilised its FX reserves to smooth volatility in the rupiah, but ensured that reserves were quickly rebuilt when pressures subsided. No doubt how Indonesia handled this period went some way towards Moody's decision to change the outlook.”
ANZ says further progress in improving the country’s resilience and showing effectiveness in reform policies will increase the chances that Moody’s positive outlook is translated into a rating upgrade.
“Moody’s and Fitch both have Indonesia at investment grade, and both now have their outlooks at positive (Fitch revised its BBB- rating outlook to positive in December 2016). S&P is the only major credit rating agency not to have Indonesia as investment-grade.
“We believe it is only a matter of time before S&P follows through with an upgrade, given that they have had Indonesia on a positive outlook since May 2015.” www.live.anz.com (ATI).