Fitch Rates Indonesia's US Dollar Bonds at 'BBB-(EXP)'

Mon Jan 6, 2014 10:46pm EST

HONG KONG, January 06 (Fitch) Fitch Ratings has assigned Indonesia's forthcoming US dollar-denominated global bonds due 2024 and 2044 an expected rating of 'BBB-(EXP)'. The final rating is contingent on the receipt of final documentation conforming to information already received. The expected rating is in line with Indonesia's Long-Term Foreign-Currency Issuer Default Rating (IDR) of 'BBB-' with Stable Outlook. The sovereign's Long-Term Local-Currency IDR is also 'BBB-' with Stable Outlook. KEY RATING DRIVERS Indonesia's 'BBB-' IDRs reflect the following key rating drivers: - Indonesia's sovereign credit profile benefits from stronger and less volatile economic growth than its peers. - The fiscal deficit has widened but remains under control - helped by adherence to prudent fiscal rules - and contributes to favourable debt levels, which are low compared with peers. - A deterioration of the current account balance in recent years makes Indonesia vulnerable to international investor sentiment and sudden capital outflows. So far the authorities have managed to mitigate the negative impact on external balances from international investors' expectations of the US central bank's unwinding of its quantitative easing program. In particular, Bank Indonesia helped to preserve foreign reserves by allowing the exchange rate to depreciate and raising its policy rates. - A structurally weak business environment, including poor infrastructure, weak governance, and prevalent corruption, limit potential for development. RATING SENSITIVITIES The Stable Outlook reflects Fitch's assessment that upside and downside risks to the rating are currently well balanced. The main factors that, individually or collectively, might lead to negative rating action are: - Insufficient policy management of renewed market pressures and a policy stance that would hamper gradual adjustment of the external imbalances. - A sharp and sustained external shock to foreign and/or domestic investors' confidence, leading to a significant weakening of the external finances. At the same time, some strains on the credit profile as a result of external market pressures are not inconsistent with a 'BBB-' rating. The main factors that, individually or collectively, might lead to positive rating action are: - Implementation of policies that make the economy more resilient to external pressures and less vulnerable, in case new market pressures arise. - A track record of implementation of reforms and policies to improve the business environment and subsequently raise potential GDP growth, for example, by making it easier to start a business, removal of infrastructure bottlenecks and ensuring minimum wage setting in line with productivity. KEY ASSUMPTIONS The ratings and outlooks are sensitive to a number of assumptions, including: - The tapering of quantitative easing in the US will be orderly, with no sudden stop of capital flows to emerging economies with substantial current account deficits. - Indonesian authorities choose stability over economic growth. Contact: Primary Analyst Thomas Rookmaaker Director +852 2263 9891 Fitch Ratings (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Andrew Colquhoun Senior Director +852 2263 9938 Committee Chairperson Paul Rawkins Senior Director +44 20 3530 1046 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Sovereign Rating Criteria' dated 13 August 2012 and 'Country Ceilings' dated 9 August 2013, are available at www.fitchratings.com. Applicable Criteria andALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.