beyondbrics

Japan’s upgrading of Indonesian debt to investment grade this week – the first time since the Asian crisis of the late 1990s – is lifting hope that other ratings agencies will soon follow suit.

The Credit Rating Agency in Japan, Indonesia’s top long-term foreign investor, allocated a ‘BBB-’ to government debt, up from ‘BB+’, citing solid economic growth, political stability and tight fiscal policy.

“If we continue our current efforts in promulgating the right kinds of policies, and maintain this reform trajectory, I’m confident the Moody’s and Fitch’s of the world will soon follow suit,” Gita Wirjawan, chairman of the investment coordination board, told the Financial Times.

‘Investment grade’ is awarded when government bonds are considered stable enough for banks to invest in. Japan’s credit agency is the only one to give that rank to Indonesia.

Tim Condon, chief economist and head of research at ING Commercial Banking, said awarding investment grade to Indonesia at this stage was ‘premature.’ He disagreed with Indonesia’s policy leaders who predict the major ratings houses will do the same by the end of 2010.

Indonesia “needs more track record of steady 6 per cent growth, steady, very low inflation and low bond yields…and those things are just appearing,” Mr. Condon said.”The more un-biased credit agencies are the international ones.”

Indonesia’s stability and strong economic performance has already led to a series of upgrades in recent months, but it will take quite a bit more convincing to win over the likes of Fitch, Moodys and Standard and Poor’s.