Indonesia regains the Investment grade rating after 14 years
Date
December 22, 2011
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Southeast Asia's largest economy regained investment grade for its sovereign debt yesterday after 14 years, as Fitch Ratings raised the long-term foreign and local currency rating to BBB-.This boost to the Indonesian credit rating came on the same day that the Indonesia's Parliament passed a critical piece of law for the future development of infrastructure projects in the country, "land provision for the development for public interest".
Although capital inflows have reached US$16.1billion, unfortunately most of the capital took the form of short term portfolio investments. These portfolio investments will only yield optimal value added when they are turned into real investments in infrastructure or manufacturing, for instance.
The investment grade has been given due to improving economic performance and external liquidity, according to Fitch's Asia-PAcific director.In practice this improvement of the credit rating means that investors will expect a lower return on their Indonesia investmets.
In practice, it should be good for the infrastructure sector but sources in the industry are still discussing the practical application of the land acquisition bill approved on December the 16th. Danang Parikesit, Professor of Transportation of Gadjah Mada University and General Chairman ofIndonesian Transportation Society (MTI), addresses other problems in the land acquisition process as crucial for the success of the PPP program:
- The BPN (National Land agency) will be in charge of carrying out the processes and it needs to have organizational and financial capabilities to execute the task.
- New government regulations are needed that will take at at least one year.
- Cooperation and communication with local governments are essential.
- Asymmetry of information is the biggest problem in practice. The presence of lowly educated middlemen who often conduct price deals with landowners together with the little trust in local governments difficults the process.
For more information on land acquisition, please, read the Indonesian infrstructure news provided by Indonesia Infrastructure Initiative. To subscribe to their newsletter, go here (bottom right).
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