By I Made Sentana
JAKARTA, Indonesia--A tax amnesty that boosted coffers and an economic recovery from a six-year low has launched Indonesia back to investment-grade status by the last of the three major ratings firms.
S&P Global Ratings said Friday that it upgraded Indonesia's rating a notch, raising its long-term sovereign rating on the country to BBB- from BB+ as it sees "reduced risks on Indonesia's fiscal metrics." The rating outlook is stable, meaning the firm is unlikely to change the rating within the next year.
The upgrade came after the government raised around $11 billion in revenue from a nine-month tax amnesty program. Although it was below target, the cash injection will likely ease pressure on the budgetand help finance much-needed infrastructure projects.
"Indonesia has exhibited effective policy-making in recent years to promote sustainable public finances and balanced economic growth," S&P said. "Political and policy institutions in Indonesia are generally stable and free of challenges to their legitimacy."
While the upgrade isn't expected to bring in massive inflows, large, conservative investors have been known to only invest in assets that have an investment grade from all three ratings firms.
Indonesian stocks surged on the announcement, which came roughly 30 minutes before trading ended for the week. The Jakarta Composite Index closed up 2.6% at 5791.88. The rupiah rose to 13,325 against the U.S. dollar from 13,396 before the news hit the market.
"S&P's upgrade is perhaps a little overdue, but it is certainly a clear indication of Indonesia's improved fundamentals in recent years," said DBS economist Gundy Cahyadi.
The move marked Indonesia's first upgrade from the three major ratings companies since President Joko Widodo became president in October 2014, inheriting a slowing economy battered by a commodities downturn.
As part of efforts to free up more funding to help boost the economy, Indonesia scrapped politically volatile fuel subsidies in January 2015, freeing up around $20 billion in funding a year. The government is in the process of ending electricity subsidies for certain households.
Jakarta has also cut red tape and lowered business costs, targeting some of the major barriers domestic and foreign companies say they face in Southeast Asia's largest economy. Indonesia jumped 15 places to 91 in the World Bank's ease of doing business index this year.
Economists say those efforts helped a turnaround in Indonesia's economy, whose growth hit a six-year low in 2015.
"Indonesia's economy is doing good, but not great," UBS economist Wellian Wiranto said.
Bank Indonesia Gov. Agus Martowardojo welcomed the upgrade, saying that the central bank will continue to maintain macroeconomic stability to support the government's reforms and help steer the economy toward more sustainable growth.
(END) Dow Jones Newswires
May 19, 2017 09:10 ET (13:10 GMT)
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