(RTTNews) - Moody’s Investor Services said Tuesday that Indonesia’s Ba3 sovereign credit rating and stable outlook remain appropriate, even if risks remained, as the country’s underlying credit fundamentals were not likely to erode significantly. The policy responses by the country to the global financial crisis have been adequate so far, the firm said.

The report said the conclusion was underpinned by the firm’s assessment of the Indonesia’s external vulnerability and liquidity management coupled with the ability of the authorities to maintain fiscal restraint.

Moody’s however, noted that the country would require a more robust crisis management framework than what it has now, as without this, a prolonged global crisis could erode its sovereign credit quality more than is currently anticipated.

Aninda Mitra, senior analyst with Moody’s, believed that even though Indonesia’s reasonably healthy credit fundamentals fitted with its rating level, reactive policies could not ultimately substitute for greater access to hard currency or a wider financial safety net amidst prolonged global de-leveraging. The analyst indicated that the country’s ability to take a more precautionary or systemic approach would support the external credit fundamentals and domestic confidence, rather than a piecemeal or reactionary approach.

Meanwhile, the firm noted that Indonesia’s current account deficit was manageable, with foreign currency also at adequate levels. However, Moody’s believed that mobile portfolio capital flows could pose additional pressures, and currency substitution by domestic residents — if confidence in the Rupiah were to decline — could prove more problematic.

The firm believed that the fiscal management supported the rating, and expects the government’s net and gross financing requirements to be 1% and 3% of GDP next year.

“However, the trajectory of government debt ratios could face more challenges as a prolonged weakening of the Rupiah coupled with high domestic interest rates would lead to a ballooning of the government’s debt stock and debt-servicing costs”. Thus in future periods, stretching beyond a year or so, the government’s external debt maturity profile could also deteriorate much more than is currently anticipated”, Moody’s said.

The firm, therefore believed that access to bilateral swap line and standby lines from the World Bank and other multilateral sources would provide credit support, and prevent the deterioration in the general government, external and debt ratios. In their absence, credit risks could be amplified over time amidst the continuing global de-leveraging, it said.

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