Amidst uncertainty in policy of subsidized oil price, Indonesia was
shocked by Standard & Poor’s Rating Agency, evaluation who revised
Indonesia’s rating in line with downturn of economic performance today.
Last Thursday [2/3] S&P affirmed Indonesia’s Sovereign Credit Rating
at BB+ Long Term and ‘B’ Short term and revised Indonesia’s outlook from
positive to stable.
In their press release, S&P stated that the rating position was
supported by strong economic growth in the past few years, prudent fiscal
management and low debt burden.
However Agost Bernard, S&P leading analyst fir Indonesia stated that
there was weakness in policy implementation which reduced support to the
prospect of economic growth in general. In addition to that the external
economic condition was also vulnerable as shown by deficit in current
transaction and increased debt in the private sector.
The shocking thing was that S&P choosed the Philippines to be in the
state of Investment Grade with stable outlook. Indonesia was rated as stable against
the previous positive. The attainment outclassed Indonesia whose rating was
lowered from positive to stable.
This also showed that the Philippine Government had excelled over the
Indonesian Government in promoting Government’s finance and to spur on growth.
Rating for the Philippines’ long term debt in the form of foreign currency was
promoted by one level to BBB minus against the previous BB with stable outlook.
It was mentioned that the Philippines elevated rating reflected a higher
external profile with moderate inflation, and lessened Government’s dependency
on foreign currency debt. The ambition of the Philippines Government to make
the Philippines a country with fastest growth had been empowered [by S&P]
because the Government aimed to break record in investment this year including
expansion of companies like Murata Manufacturing Co.
Peso, the Philippines currency, instantly strengthened to its highest
level at 41.055 per USD to reverse the previous downturn. Peso booked the
highest increase in the past 12 months after Thailand’s Baht of 11 other
currencies monitored by Bloomberg. Not just that, the Philippines stockmarket
[PcomP] also strengthened by 0.3%.
This higher rating could increase capital inflow to the Philippines. The
Philippines Central Bank, Bangko Sentral ng Pilipinas [BSP] had to take extra
measures to restrict the risk of asset bubble. Last month BSP axed deposito
account interest for the third time this year, but still maintaining bank
interest for overnight fixed deposits at the lowest record of 3.5%. One thing
was sure BSP would stay on the alert against overflow of foreign capital.
In the eyes of rating agency, the Aquino administration had increased
Government’s expenditure and tightened budget and seek for infra-structure
investment of more than USD 17 billion to spur on 7% growth this year. The
Philippines’ economy, which was twice as big as Malaysia and 10 times as big as
Singapore in 1960, grew by 6.8% in quarter IV of 2012.
One thing was sure, the Philippines rating reflected external trust. The
consequences of high rating were that the Government of the Philippines must
focus on infra structure building, widen room of fiscal to support social
investment and keep economy rolling.
As footnote, F & B was the first rating agency who promoted the
Philippines to investment grade last March, while Moody’s rated one level below
it.
Many opinions were expressed about Indonesia’s rating by S&P. some
said that lowered Indonesia’s export in the past year caused foreign capital inflow
to contract which affected Government’s balance of payment.
Loss of Investment Grade rating was on account of Monetary and fiscal
policy. The condition caused imbalance in Government’s Balance of Payment which
would automatically de-stabilize Rupiah value. Besides, the lowered rating was
due to increased oil subsidy burden. Moreover this year was a political year
full of corruption practices.
The oil price policy was the Government’s blunder which caused waste of
time instead of fiscal healtening. After a long discourse finally the
Government decided to increase oil price only after the House approved
compensation program for the poor, a step which could delay the effort to
minimize budget deficit which was predicted to double as expected unless
subsidy was axed.
The government’s failure to reduce subsidy last year had drained fund
and caused deficit in Trade Balance. Besides Rupiah was under pressure as
foreign investors lost their trust in it. So it was most important to set up
oil subsidy policy, not just to healthen fiscal but also to assure the waiting
public.
Fiscal reformation was indispensable, because S&P had openly stated
they would uplift Indonesia’s rating if oil price policy was settled, state’s
finance strengthened and structural reformation was exercised to jack up
economic growth. On the contrary the rating could be lowered if renewed fiscal
or external pressures were not responded rightly and timely.
As footnote, Indonesia’s downgraded rating could mean a challenge for
Indonesia to reform, among others to improve fiscal within the context of oil
subsidy. To support the Government’s policy, BI was also confident that
Indonesia’s economy could show hard performance amidst global crisis.
BI would constantly adopt prudent monetary policy to maintain
macro-economic and financial stability to keep Indonesia move on the right
track and develop further. However, in trying to understand the underlying
reason why S&P lowered Indonesia’s rating of Indonesia’s outlook, it was
clear that the focus was the Government who was insisted to be serious about
reducing subsidy burden that APBN budget might remain healthy and beneficial to
all people. It was this reduction of fiscal burden which should be the
Government’s concern, not other non-substantial matters. (SS)
Business News - May 8, 2013
No comments:
Post a Comment