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S&P upgrades Indonesia’s sovereign rating

Rating agency Standard & Poor’s (S&P) upgraded Indonesia’s sovereign bond ratings to investment grade on Friday, saying the move reflected its assessment of reduced risks to the country’s fiscal position.

Fund managers say the investment grade from S&P, which matches the ratings awarded by Fitch and Moody’s years ago, will give Indonesia access to a wider pool of investors. A rating upgrade usually also means an economy can get cheaper cost of borrowing for its bonds.

S&P has upgraded Indonesia’s sovereign credit outlook to BBB-, which is an investment grade, up from BB+, junk status.

The agency said “Indonesia’s increased focus on realistic budgeting has reduced likelihood that shortfall in future revenue would widen general government deficit significantly.”

The main stock index in Jakarta spiked more than 3 percent after the S&P upgrade.

“From a macro stance, the S&P upgrade is positive as this will further reduce the country’s cost of funds which is relatively expensive vs its peers in the region,” said Bharat Joshi, investment director at Aberdeen Asset Management in Jakarta.

S&P had previously not followed other big ratings agencies due to a host of concerns. It gave Indonesia a positive outlook in May 2015 for President Joko Widodo’s bold move to remove gasoline subsidies.

In June last year, it denied Indonesia its coveted investment grade again, citing weak government revenue collection and worsening corporate credit quality.

Since then, Widodo reshuffled his cabinet and appointed respected reformist, former managing director of the World Bank, Sri Mulyani Indrawati, as his finance minister.

She then ran a tax amnesty programme that many said was the world’s most successful and is currently overseeing a plan to overhaul the taxation system. (Reuters)

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