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