Indonesia Faces Negative Credit Rating Shift Amid Policy Uncertainty

Moody's has downgraded Indonesia's credit outlook to negative from stable, citing reduced policy predictability and transparency concerns. This move follows MSCI's warnings that triggered significant market upheaval. While maintaining its Baa2 rating, Moody's highlighted risks to policy effectiveness and governance integrity, prompting promises of governance reforms from Indonesia.

Moody's has revised Indonesia's credit rating outlook to negative from stable, signaling concerns over reduced predictability in policymaking. This comes days after an MSCI warning about transparency issues led to an $80 billion market destabilization. The implications for Indonesia, a G20 economy, are significant amid wavering investor confidence.

Despite retaining its Baa2 rating, Moody's shift in perspective reflects potential threats to policy effectiveness and governance. The agency warned that if these trends persist, Indonesia's longstanding policy credibility, fundamental to its economic growth and stability, might be compromised. In response, Indonesia's finance ministry emphasized ongoing economic transformations.

The MSCI's transparency concerns led to a wave of resignations among Indonesian officials, with promises of governance reforms to prevent further downgrades. A negative outlook suggests possible future downgrades unless fiscal and trading transparency issues, along with governance challenges, are resolved.

(With inputs from agencies.)