Capital Intelligence, the international credit rating agency, has revised the outlook on Indonesia's BB- long-term foreign currency rating and its BB local currency rating to stable from positive.
The revision reflects Capital Intelligence's expectation the recent improvement in Indonesia's overall credit profile is unlikely to be sustained given the worsening global economic outlook and deterioration in global financial conditions, but the sovereign's capacity to meet its obligations in a timely manner will remain adequate.
Global deleveraging and heightened risk perceptions have contributed to the withdrawal of portfolio capital from Indonesia over the past six months, putting downward pressure on local asset prices, the rupiah exchange rate and official reserves. The exchange rate has depreciated by 24 per cent against the US dollar since end-August, while international reserves have fallen from a peak of $60.6 billion (Dh222bn) in July 2008 to $50.9bn as of end-January. External pressures have become less intense in recent weeks but further declines in the exchange rate and reserves are likely during the year as the current account moves into deficit and capital inflows weaken.
With export markets shrinking and investment activity easing, the economy has started to slow and Capital Intelligence expects real GDP growth to decelerate to 3.5 per cent in 2009 from six per cent in 2008. At the same time, the budget deficit is projected to increase significantly to 2.5-3 per cent of GDP from near balance in 2008.