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Cablegate: Ratings Upgrades and Upward Revisions to Growth Forecasts

VZCZCXRO3308
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHJA #1600/01 2671102
ZNR UUUUU ZZH
P 241102Z SEP 09
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC PRIORITY 3392
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
INFO RUCPDOC/USDOC WASHDC 1581
RUCNASE/ASEAN MEMBER COLLECTIVE
RHEHNSC/NSC WASHDC
RUEAIIA/CIA WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP 0141

UNCLAS SECTION 01 OF 02 JAKARTA 001600

SIPDIS

DEPARTMENT FOR EAP/MTS, EAP/EP, E AND EEB/IFD/OMA
TREASURY FOR T.RAND
USTR FOR EHLERS
COMMERCE FOR 4430 NADJMI
MCC FOR ISMAIL
SINGAPORE FOR SETH BLEIWEIS
STATE PASS TO EXIM, OPIC AND FEDERAL RESERVE SAN FRANCISCO FOR
CURRAN

E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV ID

SUBJECT: RATINGS UPGRADES AND UPWARD REVISIONS TO GROWTH FORECASTS

REFLECT INDONESIA'S RESILIENCE AND INCREASED STABILITY

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1. (U) Summary: Indonesia's resilience to the global economic
downturn and prospects for improved economic performance following
President Yudhoyono's peaceful re-election supported a recent
upgrade of Indonesia's sovereign debt ratings and upward revisions
of 2009-2010 economic growth forecasts. Moody's Investors Service
upgraded Indonesia's foreign- and local-currency sovereign debt
ratings to Ba2 from Ba3, with a stable outlook, on September 16.
Indonesia's sovereign rating is now two notches below investment
grade, according to both Moody's and Fitch, with Standard and Poor's
rating one notch lower. Improving conditions also prompted the
World Bank and the Asian Development Bank to raise economic growth
forecasts for Indonesia to 4.3 percent in 2009 (up from 3.5 and 3.6
percent respectively) and to 5.4 percent in 2010 (up from 5.0
percent). Indonesia was also recognized by the World Bank Group as
Asia's most active reformer of business regulations in 2008/09 in
the Doing Business 2010 report, released September 9. End summary.


Ratings Upgrade Cites Improving Macroeconomic Management, Credit
Profile and Success in Containing Systemic Risk From Terrorism
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2. (U) Moody's rating upgrade highlighted Indonesia's improving
macroeconomic management and credit profile, supported by ongoing
policy prudence, structural reforms and appropriate debt management.
Indonesia's relatively low budget deficits and strong economic
growth have reduced Indonesia's general government debt and private
external debt to lower than its peer medians, according to Moody's.
Moody's noted the re-election of pro-reform incumbent President
Yudhoyono will broadly ensure policy continuity and possibly lead to
a deepening of policy and structural reforms. Moody's also
recognized that Indonesia's increasingly effective political
institutions and security apparatus had contained systemic risk from
terrorist attacks.

3. (U) Several market analysts have predicted Indonesia's sovereign
debt could gain investment grade in the next two to five years,
though recognizing the significant progress needed to achieve that
goal. In its upgrade, Moody's noted that if Indonesia's sovereign
creditworthiness is to further improve, it will need a strong
foreign currency reserve position and factors such as a more
developed domestic capital market and a larger institutional
investor base will assume greater significance.

World Bank and ADB Raise 2009 and 2010 Economic Growth Forecasts
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

4. (U) The World Bank and the Asian Development Bank (ADB) also
raised their economic growth forecasts for Indonesia to 4.3 percent
in 2009 (up from earlier forecasts of 3.5 and 3.6 percent,
respectively) and to 5.4 percent in 2010 (up from earlier forecasts
of 5.0 percent) in their most recent outlooks. These forecasts
expect domestic demand to remain the major driver of growth in 2009,
supported by a recovery in the external sector, and growing
government consumption as the fiscal stimulus is disbursed. 2010
growth is expected to accelerate on stronger investment, more
readily available credit and improved confidence among investors as
global growth and commodity prices recover. The ADB cautions that
risks to its outlook include higher than expected oil prices, which
would drive inflation and hurt consumption, and dry weather that
could damage harvests. The World Bank expects Indonesia to approach
its potential of around 6.0 to 6.5 percent growth in 2011, as the
world economy recovers.

Indonesia Recognized as Asia's Most Active Reformer
in Doing Business 2010
- - - - - - - - - - - -

5. (U) Indonesia also garnered positive attention from the IFC and
World Bank in the Doing Business 2010 report. Indonesia moved up in
the global ease of doing business rankings from 129 to 122 and was
recognized as Asia's most active reformer. Indonesia continues to
lag regional peers such as Singapore (ranked first globally);
Thailand (ranked 12), Malaysia (ranked 23) and Vietnam (ranked 93).
According to the Doing Business 2010 report, Indonesian business
regulation reforms in 2008/2009 included cutting the time required

JAKARTA 00001600 002.2 OF 002


to start a business by 16 days (from 76 to 60 days) in 2008/2009 and
the time to transfer property by 17 days (from 39 to 22 days) and
strengthening of disclosure requirements for related-party
transactions, improving the protection of investors.

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