Fitch upgraded Indonesia's sovereign debt rating from BB+ to BBB-, the bottom rung of its upper investment-grade tier, citing a decade of steady economic growth and rigorous reforms to lower the debt-to-GDP ratio.
"Fitch and the other ratings agencies have no choice but to give Indonesia investment-grade status. Italy is paying seven percent on its bond yields and has an A+ rating, while Indonesia is only paying four percent," Standard Chartered economist Fauzi Ichsan told AFP.
"Considering Indonesia has shown good debt management for some time, Fitch is essentially playing a game of catch-up with the country. The other agencies will have to give it investment grade soon as well."
Indonesia's largest bank by assets, Bank Mandiri, said the upgrade was expected and agreed it was "just a matter of time" for Standard & Poor's (S&P) and Moody's to follow, although they have different benchmarks.
"When a country achieves investment grade, that means the risk in investing there is relatively lower. It also means that Indonesia will have lower costs in funding its spending," Mandiri Bank chief economist Destry Damayanti told AFP.
Indonesia's achievement comes amid economic turmoil in developed economies, which are watching their debt-to-GDP ratios rise and their stellar ratings fall. S&P has put 15 of the eurozone on downgrade warning due to the region's ongoing debt crisis.
Indonesia has reduced its debt-to-GDP ratio from more than 100 percent during the 1997 financial crisis to 26 percent now.
Greece is experiencing a debt ratio of around 150 percent and the United States around 100 percent.
Foreign direct investment is already growing rapidly in Indonesia and is expected to top $20 billion by the year-end as companies look to tap the country's natural resources and booming domestic market.
But Ichsan warned that a sudden influx of investment could create a financial bubble.
"The money needs to be absorbed, so infrastructure, for example, needs to be accelerated so the money can go there and avoid forming a bubble," he said.
Indonesia passed a long-awaited land acquisition bill Friday to expedite infrastructure development, a reason Fitch cited for its upgrade.
Credit Suisse, however, said the impact of the upgrade would be minimal and was unlikely to spur major changes in foreign investment patterns in Indonesia.
"While it may provide some reassurance to potential investors, any investment decision of this sort is obviously based on a whole range of factors, including labour and product market regulation, access to commodities, the quality of infrastructure, the cost of labour," it said in a statement.
"One only needs to look at India, which has failed to attract the sort of inward (foreign direct investment) that one might expect, to know that (investment grade) status is by no means the be all and end all."
The majority of fund investors that invest only in investment-grade countries require such ratings from at least two agencies the statement said.
"Currently S&P have Indonesia on positive watch and is hence the next one likely to upgrade - probably within the next six months."
- AFP/ch
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