Indonesia’s economic outlook has taken a significant turn as international rating agency Moody’s Investors Service revised its credit rating outlook for the nation from stable to negative. This pivotal decision is poised to reshape the perception of global investors, particularly large financial institutions whose investment mandates often hinge on sovereign ratings to assess inherent country risks. The downgrade, though an outlook adjustment rather than a direct rating cut, signals potential shifts in investment strategies worldwide.
According to Yusuf Rendy Manilet, an economist from CORE, the shift in Moody’s outlook immediately impacts Indonesia’s risk perception. He clarified, “This isn’t due to a sudden weakening of the economy, but rather because investors foresee potential pressures on governance and policy consistency moving forward.” Notably, Moody’s maintained Indonesia’s credit rating at Baa2, which remains one notch above investment grade. Nevertheless, this change is still expected to trigger volatility in the rupiah and an increase in the yields of Government Securities (SBNs), reflecting heightened investor caution.
Yusuf further elaborated on the immediate financial implications: “When the outlook is downgraded, even if the rating remains investment grade, investors automatically demand a higher risk premium. This makes them more cautious, with some opting to postpone fund placements.” He reiterated that these effects are already visible through increased rupiah volatility and rising SBN yields, underscoring a palpable shift in market sentiment.
Manilet emphasized that Moody’s scrutiny extends beyond mere economic growth, also encompassing policy predictions and fiscal discipline. Therefore, he stressed the importance of a precise and effective government response to Moody’s assessment. “While a government response highlighting strong fundamentals is necessary, the market requires more than just rhetoric,” Yusuf advised. He asserted, “The crucial step now is to implement credible fiscal policy consolidation, synchronized with monetary policy, ensuring that the direction of financing, deficit management, and exchange rate stability is clearly understood by investors.” This strategic approach is vital for restoring and maintaining investor confidence.
Adding another layer of concern, Wijayanto Samirin, an economist from Paramadina University, cautioned that while the rating remains investment grade, a persistent negative outlook, if not addressed, carries the risk of Indonesia’s rating slipping into speculative or non-investment grade territory. “Our current situation is the worst since 2017, marking the first such downgrade since the 2000s,” Wijayanto highlighted, calling this development “highly concerning.” His remarks underscore the urgency for proactive measures to mitigate potential long-term damage to the nation’s credit standing.
In response to these developments, Coordinating Minister for Economic Affairs Airlangga Hartarto previously instructed five major Indonesian banks—PT Bank Mandiri (Persero) Tbk, PT Bank Rakyat Indonesia (Persero) Tbk, PT Bank Negara Indonesia (Persero) Tbk, PT Bank Central Asia Tbk, and PT Bank Tabungan Negara (Persero) Tbk—whose credit outlooks were also revised to negative by Moody’s, to provide comprehensive explanations to the global rating agency. This move reflects a proactive stance from the government to address Moody’s concerns at the corporate level, following the agency’s broader downgrade of Indonesia’s national credit outlook.
Speaking from Hotel Shangri-La Jakarta, Airlangga emphasized the critical need for transparency. “Each bank needs to provide explanations to Moody’s, as it is crucial for all rating agencies to understand their concerns, and these concerns, of course, require adequate answers,” he stated. He reiterated that while Moody’s maintained Indonesia’s national credit rating at Baa2, firmly within investment grade, the downgrade of the outlook itself signifies underlying worries that demand a clear and strategic response from both corporations and the government. This collective effort is essential to dispel investor anxieties and safeguard Indonesia’s economic stability in the global market.
Summary
Moody’s Investors Service has revised Indonesia’s credit