JAKARTA: Moody’s said on Thursday it had cut Indonesia’s credit rating outlook to negative from stable, citing reduced predictability in policymaking days after MSCI flagged transparency issues that triggered a market rout of more than $80 billion.
Indonesia’s chief economic minister Airlangga Hartarto downplayed the step, saying ratings agencies and global financial markets were “yet to understand” the country’s new growth strategy.
The change in outlook is a fresh hit to Indonesia, a $1.4 trillion G20 economy under the stewardship of President Prabowo Subianto, with investors cooling on the country due to concerns over policy uncertainty, including a widening fiscal deficit and central bank independence.
Moody’s maintained its Baa2 rating but said the shift to a negative outlook from stable reflected risks to policy effectiveness and signs of weakening governance.“If sustained, the trend could erode Indonesia’s long-established policy credibility, which has supported solid economic growth and macroeconomic, fiscal and financial stability,” the ratings agency said.
Airlangga, speaking at an event held by the country’s financial regulator in Jakarta on Thursday evening, said the government would use the response process to provide the ratings agency with more explanation.
“It’s true that our budget is a little different because we are spending big for the president’s programmes such as free meals, red and white cooperatives, and public services,” he said, referring to projects that include efforts to revitalise rural economies.
But, he added, a sovereign wealth fund set up by Prabowo, Danantara Indonesia, would be driving growth from investment, instead of from the government’s budget.Indonesia’s central bank governor Perry Warjiyo said the ratings outlook cut did not mean the country's economic fundamentals were weakening, adding its economic growth remains solid.
“Financial systems stability remains well maintained, supported by adequate liquidity, strong banking capitals, and low credit risks,” he said in a statement.Bank Indonesia said it would strengthen policy synergy to maintain macroeconomic and financial system stability, and “coordinate with the government to strengthen communication about policy in order to maintain market confidence”.
