Increased Infrastructure Financing Expected After Indonesia Secures Investment-Grade Status

(Antara Photo/Julius Satria Wijaya)

By : Amal Ganesha, Yosi Winosa & Rausyan Fikry | on 12:38 PM May 23, 2017
Category : Business, Economy

Jakarta. Securing investment-grade status from global credit rating agency Standard & Poor's gives Indonesia a stronger footing to pursue more infrastructure developments, a state minister said on Monday (22/05).

The credit rating agency raised the country's long-term sovereign credit rating to BBB-, the lowest investment grade tier, from BB+ last Friday. S&P was the last of three major global rating agencies to grant the investment grade status to Indonesia.

Coming on the heels of last week's rating upgrade, the government expects the economy to grow as much as six percent by next year as more foreign direct investments flow into the country.

The cost of government borrowing is also expected to drop, allowing President Joko "Jokowi" Widodo to invest more state funds into national infrastructure developments.

"S&P's upgrade frees up the government to seek more investments," National Development Planning Minister Bambang Brodjonegoro said.

The minister said the government will look to raise the country's GDP to somewhere between 5.4 and 6.1 percent next year, up from a 5.1 percent growth rate expected for 2017.

"Investment growth should also quicken, from just 4-5 percent in the past few years [...] we want to see 7-8 percent growth by next year."

Bambang added that the newly minted investment-grade status from S&P, Moody's and Fitch Ratings, will open up global financial institutions that were previously hesitant – or unable – to invest in national infrastructure projects to ramp up funding in coming years.

According to Finance Minister Sri Mulyani Indrawati, the government must set out to align investors' interests with the administration's plan to increase infrastructure spending across the archipelago, create new jobs and pursue more inclusive economic development projects.

"That can mean [investing] in large-scale infrastructure projects outside of Java, perhaps in Kalimantan, Sumatra, Sulawesi, Papua and other islands," Sri Mulyani said.

Steady Hand

The recent investment-grade upgrade reflects S&P's and other economists' belief that the government can balance development ambitions without blowing the state budget deficit out of proportion.

"It's obvious, the reason S&P improved Indonesia's rating was because our fiscal risk is lower under Sri Mulyani," Dzulfian Syafrian, an economist at the Jakarta-based Institute for Development of Economics and Finance (Indef), told the Jakarta Globe.

Since taking up her post as finance minister last year, Sri Mulyani has slashed state spending by $10.2 billion by cutting unnecessary budget allocations in a bid to keep the country's deficit below the 3 percent legal limit.

Dzulfian, who is also a doctoral researcher at the UK-based Durham University Business School, said the country's fiscal risk was high in previous years because of over-optimistic estimations by Jokowi.

"[The president] should realize by now that the economy can't be driven in a short-term manner. Tax generation was stagnant [...] and the fall of global oil prices made it impossible to expect such high growth rates," Dzulfian said.

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