JAKARTA (Reuters) - Rating agency Standard & Poor's (S&P) upgraded Indonesia's sovereign ratings to investment grade on Friday, a long-awaited move that sent Jakarta shares soaring on hopes it could spur a wave of investment into Southeast Asia's biggest economy.
This is the first time since December 1997 and the Asian financial crisis that Indonesia's bonds have been rated investment grade by all three major rating agencies including Moody Investors Service and Fitch Ratings.
Stocks surged 2.59 percent after the announcement.
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The upgrade may boost the appeal of Indonesian assets among conservative Japanese institutional investors and help attract as much as US$5 billion (S$7 billion) in funds, Goldman Sachs Group said in March.
Government coffers were also bolstered by a successful tax amnesty.
Rising exports amid increasing global oil prices have built up the central bank foreign exchange reserve to the highest level in five years of 123 billion US dollars. Momentum in the economy has picked up this year as exports rebounded, with the International Monetary Fund forecasting growth of 5.1 per cent in 2017.
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The agency said "Indonesia's increased focus on realistic budgeting has reduced likelihood that shortfall in future revenue would widen general government deficit significantly". President Joko Widodo's government cut public spending last year to meet a legal fiscal deficit cap of 3 per cent of gross domestic product and built up foreign exchange reserves to a more than five-year high of US$123 billion. Net government debt will likely be contained well below 30 percent of GDP, it said.
Indonesia is trying to lure investors for a $450 billion infrastructure drive to revive economic growth. The central bank will seek to maintain stability "to support the continuation of structural reforms taken by the government and the development of a sustainable and inclusive economic growth", Governor Agus Martowardojo said in a statement.
"More upgrades are possible, with Fitch and Moody's potentially moving Indonesia up the scale further into investment grade", Wellian Wiranto, an economist at Oversea-Chinese Banking Corp.in Singapore, wrote in a note. While Indonesia has shown "effective policy making" in recent years, it still trails its peers on perceptions of governance and corruption, it said. Tough reforms got Indonesia to this point.
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