Indonesia's Investment Risk Decreased by 3000 bps in 2017

Standard & Poor's upgrade of Indonesia's foreign currency rating to BBB- has propelled the country into investment grade status. This has triggered a decline in investment risk perception within the domestic financial market. Bloomberg data shows that the 5-year Indonesian government bond Credit Default Swap (CDS) immediately dropped by over 1,000 basis points (bps) to 123.04 on May 19th, from 133.89 the previous day.

On May 25th, the Indonesian sovereign debt CDS slightly increased to 124.84, still representing a decrease of 230 bps from the end of April and a drop of over 3,300 bps from the end of 2016, when it stood at 157.9. Indonesia's economic growth of around 5 percent, controlled inflation, and the stable Rupiah exchange rate have contributed to this decreased investment risk perception. Furthermore, the improved credit rating is expected to increase foreign capital inflows and reduce borrowing costs in Indonesia, for both government and corporate bonds.