Developments in Indonesia suggest that the country is on track to strengthen its sovereign balance sheet and to improve its macroeconomic performance, progress which is associated with other nations that have recently obtained investment grade status, Fitch Ratings said Thursday.
In a report, the credit rating agency--which rates Indonesia BB+ with a positive outlook--noted that government indebtedness was falling as a ratio of gross domestic product, while the sovereign external balance sheet had strengthened.
“The prospects for an upgrade could be compromised if a reversal of short-term capital flows posed risks to broader economic or financial stability,“ Fitch said. “However, some capital outflow would not necessarily preclude an upgrade if no such broader instability resulted.“
The rating agency said the Southeast Asian nation had shown “impressive resilience“ during the global financial crisis and world recession. In the short term, inflationary pressures pose a risk, it said, noting it saw some evidence that strong price growth was starting to hurt consumer sentiment. But it added that price pressures should subside in 2011 as the central bank tightens monetary policy.
Fitch also pointed out that Indonesia's investment rate has risen, and said that the falling dependency of domestic demand on commodity prices was another factor in its favor.
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