Mandiri Sekuritas Indonesia’s credit rating outlook rose to Positive

The rating agency Moody’s Investor Service has raised Indonesia’s credit rating outlook to Positive from Stable on the back of relatively solid economic development prospect and sound macroeconomic policy, particularly in debt management policy. The upgrade of outlook may lead to an increase in the credit rating in the next 18 months.

Indonesia’s economic growth prospect is steadier and better compared to most other regional economies. In the 1Q09 the economy grew by 4.4% yoy, while Malaysia and Thailand have negative growths of -6.2% and -7.1% yoy. For the whole 2009 and 2010 market consensus expects Indonesia’s economy to grow by 3%-4% and 5%-5.5%, while Malaysia and Thailand are likely continued to struggling with the negative growth in
2009 of -0.7% and -2%, respectively, before it recover slowly in 2010 to 3.6% and 1.7%.

Indonesia also shows sound debt management policy. The ratio of external debt to GDP declined significantly to 31% by 2008 and expected to decline further to 29% by end 2009 from the high of 49% in 2005. While short-term debt to GDP ratio is only 4% of GDP in 2009 compared with Philippines, Malaysia and Thailand of 20%, 17% and 7%,
respectively.

We view this result positive to boost investor and market confidence. Significant improvement in Indonesia credit default swap (CDS) to 300bps in Jun09 from the highest of 1248bps in Oct,08 also indicates that foreign investor perceives lower risk perception in Indonesia that may lead foreign money to come in. We noticed that foreign ownership in government securities rose to Rp 90tn in early Jun09 from around Rp 80tn in Mar09, while in the equity market net foreign buying has risen significantly with an average of Rp2tn since Apr09 compared with net selling of Rp1.2tn in Jan09. Looking ahead we expect foreign inflow to continue along with the improvement in Indonesia’s economic outlook rating and risk perception. At this juncture we have revised up our YE09 Rupiah exchange rate forecast to Rp/US$ 9,772 from previous forecast of Rp/US$11,705 and YE10 forecast to Rp/US$9,539 from Rp/US$10,909.