S&P says reviving investor confidence is key for Indonesia’s sovereign support

[SINGAPORE] S&P Global Ratings said reviving investor confidence is key for sovereign support for Indonesia after a warning from index provider MSCI in January jolted the stock market.

S&P said the direct impact on sovereign credit metrics is limited for now, noting authorities are addressing market structures that have led to foreign portfolio flows.

“The damage to investor confidence is reversible. But a failure to do so would deal a more serious blow to investor confidence than an MSCI reclassification,” S&P analysts said in a report.

They said the sovereign ratings on Indonesia are sensitive to both fiscal performance and external stability. “Further deterioration stemming from the stock market volatility could raise the likelihood of a negative rating action.”

MSCI in January flagged transparency issues that triggered a market rout and prompted Indonesia to announce sweeping reform proposals.

Rating agency Moody’s earlier this month cut its outlook for Indonesia to negative from stable, citing reduced predictability in policymaking in yet another setback for the US$1.4-trillion G20 economy. REUTERS