Moody's Upgrades Ratings

Moody's Investors Service upgraded Indonesia's credit ratings on Thursday (18/10/07), citing progress in cutting its debt and ample foreign exchange reserves and trade surplus, which offer buffers against external shocks, Dow Jones Newswires reported.

The move brings Moody's rating belatedly into line with rankings of BB- by both Standard & Poor's Ratings Services and Fitch Ratings.

Fitch, which has a positive outlook on its Indonesia grade, is still the most upbeat on the country.

Moody's lifted the Indonesian government's foreign- and local-currency bond ratings to Ba3 from B1 and lifted its foreign-currency bond ceiling to Ba2 from Ba3. It said the outlook on all ratings is stable.

"Along with prolonged fiscal restraint and recurrent under-execution of regional and local level spending targets, exchange-rate appreciation has also assisted in reducing the government debt ratio from a high of 100% of gross domestic product (GDP) in 2000 to an expected 34% in 2008," Moody's lead analyst for Indonesia Aninda Mitra was quoted as saying.

Gundy Cahyadi, an economist at IdeaGlobal, said the rating upgrade wasn't surprising given that Moody's had signaled it earlier in the year.

"Certainly, fundamentals of the economy have shown improvement over the past few years, especially in terms of the external debt-GDP ratio. The government commitment to shift the allocation of debt to domestic debt has helped on this front, and we continue to see the budget for 2008 highlighting this same aspect," he said.

Moody's also raised the foreign currency long-term debt and foreign currency long-term deposit ratings of 11 Indonesian banks -- Bank Central Asia, Bank Danamon, Bank Internasional Indonesia, Bank Lippo, Bank Mandiri, Bank Negara Indonesia, Bank Niaga, Bank Permata, Bank Rakyat Indonesia, Bank Tabungan Negara and Pan Indonesia Bank.

There was some concern over rising oil prices but analysts said the signals were mixed over its impact on the Indonesian economy.
In Tokyo, Economic and Fiscal Policy Minister Hiroko Ota said Friday that higher prices would affect the economy of Japan, Indonesia’s largest trading partner.

But Indonesia's OPEC governor, Maizar Rahman, told Dow Jones Newswires on Thursday the government will see $730,000 a day in net windfall profit for every $1 increase in oil prices.

Government revenue from oil, gas and coal reached Rp215 trillion ($24 billion) in 2006.

At the same time the government paid Rp60 trillion in fuel subsidies, resulting in net revenue from energy products of Rp155 trillion. The country's natural gas and coal prices rose in tandem with oil prices, he said.

There was also speculation that higher oil prices would boost prospects for the biofuels industry, in which the government and private interests are investing more than $5 billion.

The private sector saw a major move by shipping company PT Berlian Laju Tanker, which reported it had agreed to pay $850 million for Chembulk Tankers LLC.

Berlian Laju's acquisition will give it control over 19 chemical tankers and help in transporting petrochemicals, acids and edible oil to and from the US to South Asia, the Middle East and China, Bloomberg said.

The Jakarta Stock Exchange composite index lost 2.8% in value over the week, closing on Friday at 2,563.75, with the fall attributed to profit-taking. The rupiah was trading at 9,082/9,090 to the dollar.
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