Jakarta, June 22, 2010 – Moody’s Investors Service has changed the outlook on Indonesia’s Ba2 local- and foreign-currency sovereign ratings to positive on expectations of more stable financial policy and improvement in the government’s finances.

The rating agency said in a statement Monday that the improvement in the outlook also applied to Indonesia’s 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,” Aninda Mitra, Moody’s vice president and its
lead sovereign analyst for Indonesia, said.

He said a series of external disturbances, culminating — most recently — in instability in several European sovereign debt markets, had no serious implications on Indonesia’s credit fundamentals, which remain on an improving trend.

Mitra also noted that the government remained committed to political and financial stability as indicated in its concerted crackdown against terrorist groups. “Recent appointments and nominations at the Finance Ministry, and at the central bank, are supportive of policy continuity and institutional credibility,” he added.

“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,” Mitra said.

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, he added

“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,” Mitra said. Moreover, he added, access to exceptional funds from the Chiang Mai multilateral initiative, in the event of need, is another supportive development for the ratings.

Moody’s last rating action concerning Indonesia was on September 16, 2009 when the sovereign rating was upgraded to Ba2 with a stable outlook.

Moody’s also changed the outlook to positive from stable of PT Perusahaan Gas Negara’s and PLN Ba2 corporate family ratings, following its decision to change the Indonesian government’s rating outlook to positive from stable.

The Jakarta Post was reported.