Moody’s Flags Rising Risks in Indonesia on Policy Uncertainty

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Or sign-in if you have an account.dwg7srdjh}}pksp(6ck1[d)w_media_dl_1.png Bloomberg(Bloomberg) — Moody’s Ratings remains concerned about policy uncertainty and fiscal sustainability risks in Indonesia, reinforcing its cautious outlook and warning that downside risks are likely to persist.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountWhile there have been some positive developments, the balance of risks has turned “a little bit more negative” since the ratings agency downgraded Indonesia’s outlook to negative in February, said Martin Petch, a vice president within the sovereign risk division. “We’ve had pressures emerge, particularly following the Iran war, we’ve seen subsidies increase significantly and that’s put some pressure on the fiscal outcome for this year and next year.”The view mirrors persistent investor concern over President Prabowo Subianto’s economic agenda. Worries over fiscal discipline, central bank independence and the government’s expanding role in key sectors have weighed on Indonesian assets this year, fueling a selloff that’s left the nation’s bonds, currency and stocks among the region’s worst performers. Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againOne area of particular risk is PT Danantara Sumberdaya Indonesia, a new agency created in May to oversee raw-material exports. According to Petch, a lack of clarity around its mandate has added to investor angst over rising state intervention. Moody’s also sees Indonesia’s narrow revenue base as a growing constraint, leaving the government with little room to finance ambitious programs like the free lunch program. “At this point, we haven’t really seen a great deal of movement on broadening the revenue base,” he said.There have been some positives. Indonesia has scaled back its lunch program budget amid rising energy subsidy costs to keep the deficit within legal limits. Officials are also reviewing the budget to identify additional ways to save. Others aren’t so worried. Just last week, S&P Global Ratings affirmed Indonesia’s investment-grade rating and stable outlook even after Moody’s and Fitch Ratings lowered their assessments, signaling confidence that the country’s credit strengths remain intact. The next six to 12 months may prove pivotal. Moody’s is closely watching foreign-exchange reserve adequacy, policy credibility, the health of its state-owned enterprises and governance around Danantara. Petch said that ultimately, it’s about whether policy is moving in the right direction.A significant expansion of fiscal spending without accompanying revenue reforms, he added, would be a particularly worrying signal for Indonesia’s credit profile. —With assistance from Grace Sihombing.This advertisement has not loaded yet.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.