From the category archives:

Indonesia

S&P Finally Upgrades Indonesia: Outlook Positive

14 March 2010

After being behind the curve for awhile, S&P finally upgrades Indonesia. The upgrade of FC rating to ‘BB’ from ‘BB-‘ is not a surprise, and was in fact, long overdue – S&P had the outlook on positive since October 2009, and had been trailing other rating agencies. S&P cites an improving government debt ratio and growing foreign currency reserves, reducing the country’s vulnerability to shocks as factors driving the upgrade. The positive outlook reflects “expectations that broader economic and fiscal reform agenda will proceed apace once the political distractions subside.”

Indonesia: Impact of Changes on SBI Operations

8 March 2010

BI announced new measures last Friday to lengthen tenors of SBI bill issuance (3-mo and 6-mo instead of concentration on 1-mo tenor) and limit the frequency of SBI auctions from weekly to monthly (2nd week of the month). We think these measures were announced in order to push excess liquidity, especially coming from foreigners, to extend duration into more productive areas such as government bonds/T-bills, and to boost interbank money market liquidity (volume remains small vis-à-vis excess liquidity in the market), so that this would improve the transmission of monetary policy and boost bank lending.

Indonesia Banks: BI Quandary

5 March 2010

Recent events seem to indicate that there is a risk of dilution of Bank Indonesia’s Policy and Regulatory authorities. They include 1) Parliament vote that the Bank Century bailout was illegal; 2) Proposed change in law that aims at transferring banking sector supervision away from BI to a newly created Financial Services Authority (OJK); and 3) Weak transmission of monetary policy.

Indonesia: Bond Outlook – Does Rally Have Legs?

5 March 2010

We think S&P’s rating is very much behind the curve at BB- (pos), and that it can be argued that Indonesia could surpass Turkey’s ratings (Ba2/BB/BB+), given strong fiscal and external strength, but some qualitative issues may be a bit of a constraint. While Indonesia’s fiscal ratios are already healthier than peers, external liquidity, while improving, is not quite at par with investment grade peers. However, gradual improvements this year should allow ratings to go to high double B; investment grade will likely take longer. Recent political noise may slow the upward momentum, but we don’t think it will change the direction.

Indonesia: House Votes Bank Century Bailout as “Illegal”

4 March 2010

Last November, the Supreme Audit Agency (BPK) released a report citing irregularities in the Rp6.7 trn ($710+mn) bailout of Bank Century (increased from the original Rp1.3 trn), with implications for VP Boediono and Finance Minister Sri Mulyani who were the BI Governor and Chairman of the Financial System Stability Committee (KSSK), respectively, at the time. The investigation was passed on to a House Special Committee, and last week, 7 out of the 9 parties concluded that the bailout violated the law (though there were reports of shifting views), and 4 of these factions (including 2 ruling coalition partners – Golkar and PKS) explicitly named VP Boediono and Sri Mulyani as responsible.

Indonesia Equity Strategy – Rising Political Temperature

3 March 2010

There were scuffles both inside and outside the Parliament yesterday as the voting day approached. Market has not reacted because it does not expect any imminent threat to the two Reformists, Finance Minister and Vice President. Our view is that the issue has halted the reform process, with the risk of more populist/nationalist decisions. This may have an adverse impact on a rising GDP growth trajectory and Sovereign Rating upgrades.

Indonesia: Feb Inflation Lower Than Expected, Jan Trade Surplus Narrows

2 March 2010

Feb inflation below expectation at 3.81% YoY (+0.3% MoM); We expect BI rate to remain on hold, and the policy statement tone to be similarly dovish; Following outsized performance in Dec, exports rose 59.0% YoY in Jan while Jan imports fell 7.35% MoM NSA. Since exports slowed more than imports, the trade surplus narrowed to US$2,031.4m from US$3,048.2m in Dec.

Indonesia: External Accounts Improve in 4Q09

17 February 2010

Major Points: Indonesia’s 4Q09 current account (CA) surplus is higher than expected; We expect CA surplus to gradually narrow in 2010-11F; The capital and financial account posted a $1.4bn surplus in 4Q09; Overall BOP (ex reserve accounts) posted a $4bn surplus in 4Q. Policy Implications: Neutral to IDR; Better confidence in country’s external resilience

Indonesia Strategy: Looking Beyond Current Cycle

11 February 2010

Indonesia market is under pressure and the key factors coming to the forefront are 1) Valuations 2) Inflation/tightening 3) USD liquidity reversal 4) Commodity prices and 5) Politics. Valuations: Citi’s quants team ranks Indonesia in the Attractive quadrant, but with the risk of it falling into Glamour if earning revisions are not forthcoming. Inflation/Tightening: Citi’s 2010 economic outlook for Indonesia is favorable, with 5.5% GDP growth and benign inflation. USD Strengthening — Indonesia enters a phase of probable USD tightening with a relatively strong balance of payments, improved sovereign rating and rising corporate EBIT margins. Commodity Prices: A possible collapse in commodity prices is a major risk to our call. Politics: The market has yet to react to the Bank Century issue, seemingly expecting it to fizzle out.

Indonesia: Better Than Expected 4Q09 Real GDP Growth

10 February 2010

4Q09 real GDP grew at 5.4% YoY; 2009 GDP grew at 4.5% YoY; Private, government consumptions were major contributors to 4Q GDP growth; Faster investment growth YoY, although momentum slowed; Net exports contribution to GDP growth in 4Q slightly receded; Positive full year 2009 YoY growths across all sectors

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