The term investment Grade referred to rating of a nation’s economy where
government of companies’ debt held relatively lower risk against possible
default which led to sustainable counterpart’s trust in the long run.
The Rating Agencies who made ratings like Standard & Poor’s, Moody’s
investors Services and Fitch Rating were using different benchmarks but using
characters like ‘A’ , ‘B’ , or ‘C’ to indentify the credit quality of a company
or nation. ‘AAA’ and ‘AA’ are high credit quality and ‘A’ and ‘BBB’ are medium
credit quality and is at the Investment Grade level.
Credit rating with attributes of ‘BB’ , ‘B’ , ‘CCC’ are classified as
credit of low quality. In terms of promissory notes, those who are rated as low
category are often called junk bonds. The title investment Grade was normally
attributed to a nation having strong fundamental economy, long term political
stability, and running prudent economic management policy, low debt ratio, and
controlled inflation.
If a country was demoted by rating agency from Investment Grade to lower
level it would mean trouble to the object country because it might affect trust
in Government’s or companies’ bonds and trust among investors in general. On the
contrary if a country was promoted to investment Grade it would mean growing
trust in that country, so investors might be interested in moving their
investment from short term investment [like portofolio shares] to Foreign
Direct Investment.
Under this context, after waiting for 14 years, Indonesia again was
entitled to Investment Grade from Fitch Ratings moving up from BBB+ to BBB-
Indonesia’s upgraded position was for long term debt in foreign currency and
Rupiah with stable prospect. Fitch also promoted Indonesia’s Country Ceiling to
BBB- from BB + and short term debt at F3.
By Fitch standard, the lowest rating was BBB- and the highest level was
AAA. Indonesia lost the Investment Grade rating in 1997 when Indonesia was
hampered by monetary in tandem with change of regime. Promotion of rating
reflected sound economic growth, low debt ratio, strengthened external
liquidation and prudent macro-economic policy.
Fitch projected Indonesia’s GDP growth at more than 6.0% per year over
the projected period till 2013 in spite of unfavorable global economy. Fitch
rated that on of Indonesia’s economic strength was domestic consumption. A
condition as such enabled sound economic growth which was not affected by
external imbalance.
Even the government believed that the investment grade attained by
Indonesia would lead to structural transformation of investment in Indonesia
from short term portopolio investment to long term investment. Indonesia would
be more attractive as investment destination. The capital needed to be managed
and transformed into long term investment of the real sector for sustainable
economic growth.
All through 2012, total investment value foreign or domestic was more
than Rp300 trillion, a spectacular figure amidst global adverse economic condition.
Indonesia’s impressive economic attainment had drummed up foreign capital
inflow in vast magnitude to the stockmarket and moneymarket.
To drum up foreign investment, besides maintaining political and
economic stability \, it was necessary for Indonesia to reform and modernize
the taxation system, and offer tax incentives which was an integral part of the
Indonesia Economic Development and Expansion Plan [MP3EI]. The taxation system
was part of it as well as the law on taxation, and organization, human
resources, and business system.
In case of MP3EI, it was one of the priorities of national development
whereby to increase investment and enhance good investment climate in
Indonesia. The attainment of Investment Grade would drive FDI to the real sector
on long term basis. The government believed that Indonesia was entiled to
investment Grade for being able to score economic growth above 6% and maintain
debt-to-GDP ratio below 25% and able to suppress budget deficit to be low 2.5%.
Again, such was felt as something truly gratifying amidst uncertain
global economic climate where even countries which were perceived as strong had
to crumble and demoted in terms of debt rating. The attainment of investment
Grade was important as it would influence world’s perception of Indonesia’s
economy and increase the probability to invest in Indonesia.
For that matter it was the right thing for the government to promote
strategic steps to enhance measures to reduce debt-to-GDP ratio and maintain
growth rate at above 6%. Besides, there should be effort to maintain climate,
not les important was the effort of corruption eradication by government
officials or the private sector whereby to protect national economic machine.
(SS)
Business News - June 26,2013
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