S&P likely to upgrade Indonesia’s sovereign credit rating

The Indonesian markets are keen on a likely ratings upgrade by Standard and Poor’s after talks held with President Widodo earlier this week. A credit rating upgrade by the rating agency, would not surprise markets but be a key driver for the next few trading days.

Talks of an upgraded rating to the Indonesian economy have been hinting markets since the past two years, till date. Researchers believe the impact would eventually subside down, not making any major impact on the financial markets.

However, the credit rating would affect the outlook for foreign direct investment, effectively raising the investment ceiling for foreign investors, leading to additional FDI inflows. The actual FDI (balance of payment basis) has fallen to USD 18 billion in 2015, down from USD 25 billion in 2014. The government had previously targeted up to USD 35-40bn in annual FDI, as part of the ambitious USD 450bn 5-year infrastructure plan, DBS said in a research note.

Meanwhile, it remains little to analyze whether or not the US-based rating agency will extend a higher rating, but the government still needs to implement certain necessary reforms to boost the economic infrastructure.  The reforms, aimed at reducing the cost of doing business in Indonesia, announced last year, has remained a theory since then and hence, needs immediate action to be taken upon.

At 6:20GMT, USD/IDR rose 0.33 pct to 13,305.5.