Moody's Investors Service has today changed the outlook on Indonesia's Ba2

local- and foreign-currency sovereign ratings to positive, from stable. The

improvement in the outlook also applies to Indonesia's Ba1 foreign currency

bond ceiling and Ba3 foreign currency deposit ceiling.

The positive outlook broadly reflects the country's capacity for sustained

strong growth, the overall stability and effectiveness of its fiscal and

monetary policies, and expectations of further improvements in the

government's financial and debt position.

"The core of Indonesia's growth story is driven by a large domestic market

that is appropriately managed by a well-tested economic policy framework,"

says Mr. Aninda Mitra, Moody's Vice-President and its lead sovereign analyst

for Indonesia.

"A series of external disturbances, culminating -most recently- in

instability in several European sovereign debt markets, have had no serious

implications on Indonesia's credit fundamentals --which remain on an

improving trend," adds Mitra.

He also notes that the government remains committed to political and

financial stability. This is underscored by its concerted crackdown against

terrorist groups. And recent appointments and nominations at the finance

ministry and at the central bank are supportive of policy continuity and

institutional credibility.

Investigations into the alleged irregularities in the bailout of Bank

Century represents primarily an internal political struggle within the

ruling coalition. Nonetheless, fiscal and monetary policy management remains

unaffected and incremental progress in structural reforms, in several key

areas, is still likely ," says Mitra.

According to Mitra, the improving trajectory of Indonesia's sovereign rating

incorporates the significant reduction in the government's debt burden and

its fiscal financing requirements relative to many ratings peers. It also

reflects the ongoing diversification seen in the government's sources of

fiscal funding.

"However, in the future, the deepening of domestic capital markets --which

include a larger role for a reliable domestic institutional funding base--

could lend greater stability and structurally improve the government's

market access, as well as help sustain the positive momentum in sovereign

ratings," says Mitra.

The increase in Indonesia's foreign currency reserves is also notable, while

better prospects for foreign direct investment could sustain further

improvements in the overall external position in line with its sovereign

ratings peers. Moreover, access to exceptional funds from the Chiang Mai

multilateral initiative, in the event of need, is another supportive

development for the ratings.

"Improvements in the level and composition of the government's debt, if

accompanied by sustained improvement of the country's external position, or

a deepening of domestic markets, would be the most likely triggers for a

future upgrade," says Mitra.

Lastly, "the recent widening of the overnight interest rate corridors, and

greater restrictions on the holding period of Bank Indonesia securities'

(SBI) holdings are ratings neutral as it does not fundamentally restrict the

timely and comprehensive servicing of credit obligations," says Mitra.

Moody's last rating action on Indonesia was on September 16, 2009, when the

sovereign rating was upgraded to Ba2 with a stable outlook.

The principal methodology used in rating the government of the Republic of

Indonesia is "Moody's Sovereign Bond Methodology", published in September

2008, which can be found at www.moodys.com in the Rating Methodologies

sub-directory under the Research & Ratings tab. Other methodologies and

factors that may have been considered in the process of rating this issuer

can also be found in the Rating Methodologies sub-directory on Moody's

website.

Press Release dari Moody's Investor Services.