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Stability Outlook Indonesia Increases National Investment

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By: David Hutapea )*

Rating agency Standard and Poor’s (S&P) has raised Indonesia’s outlook to stable. This rating agency also maintains Indonesia’s debt rating at the BBB (investment grade) level. The rating improvement is expected to increase national investment.

Bank Danamon Macroeconomic Analyst Irman Faiz said, S&P raised Indonesia’s outlook due to Indonesia’s improving macro and fiscal conditions. This can be seen from the continued domestic economic recovery, although it was hindered by the outbreak of the Omicron variant of the Covid-19 virus.

Irman said that the domestic economic recovery continued despite the outbreak of the Omicron variant of the Corona virus. However, the recovery is faster and the impact is less than the previous variant. Fiscal conditions are also good, as seen in the midst of rising commodities, state revenues are also improving, providing room for the fiscal deficit to return to below 3% in 2023.

According to Irman, the impact of the increase in Indonesia’s outlook will affect the level of confidence of global investors in Indonesia. Especially for direct investment or foreign direct investment (FDI) and portfolio investment to the domestic financial market.

He said that FDI flows in the first quarter of 2022 were very good. With this improvement in outlook, global investors should be more confident and optimistic about the Indonesian economy. Meanwhile, from portfolio investment, the increase in Indonesia’s outlook is positive for global investors who have invested their funds for a longer period of time.

On a different occasion, Permata Bank economist Josua Pardede assessed that the increase in Indonesia’s rating outlook from negative to stable by S&P was driven by several factors. The main factor is the increase in commodity prices that support the condition of Indonesia’s external balance. This is reflected in Indonesia’s current account which recorded a surplus in the third quarter of 2021 and fourth quarter of 2021.

Apart from a balanced external side, S&P is also considering increasing Indonesia’s economic activity and also implementing fiscal consolidation by the government as part of the post-Covid-19 exit strategy.

The APBN deficit which tends to shrink, indicates a very prudent management of state finances and even within the indicative ceiling of the 2023 APBN, the fiscal deficit is expected to return to normal conditions, namely 3% of Gross Domestic Product (GDP).

This also implies that the condition of government debt tends to decline, which in turn shows that debt sustainability continues to improve. Josua also assessed that this change in outlook would be able to support rupiah stability and yield movements in the financial market.

However, in line with the affirmation of Indonesia’s rating rating, the impact of the increase in the rating outlook on the rupiah and bonds tends to be short-term. In the future, if Indonesia’s debt condition improves, the outlook may turn positive, which has the potential to raise Indonesia’s rating in general.

Indonesia is also trying to make it easier for potential investors to understand the potential sectors to invest in Indonesia, the preparation of a strategic project map of investment opportunities will also have a positive impact on Indonesia’s economic growth. The more investors invest in Indonesia, Indonesia can create more jobs, develop the regional economy and increase the country’s foreign exchange.

Indonesia’s macroeconomic stabilization is also increasingly maintained, where the inflation rate is low at 1.75% in November 2021. It is hoped that if the government focuses on efforts to stabilize politics, security and the economy, it is not impossible that Indonesia will get the title of the top 50 investment-worthy countries, where previously in 2017 Indonesia was still in position 91.

Indonesia is considered still attractive to investors because of the sustainability of the government’s policy focus on the economy and development. To be even better, the government still needs to make policies that can attract investors, such as tax incentives as well as research and vocational training. And no less important is the improvement of the quality of human resources, in accordance with the needs of modern industry that is developing at this time.

Of course, this stability must be maintained so that investment in Indonesia will increase and strengthen, so that employment opportunities will also increase.

)* The author is a contributor to Pertiwi Institute

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