Key Takeaways From Meeting With S&P Global Rating
In our recent discussion with S&P Global Ratings on Indonesia’s sovereign rating, S&P stressed that the direct impact of recent equity-market volatility on core sovereign metrics is still limited and largely technical, but warned that a failure to restore investor confidence could gradually erode sovereign support via higher financing costs, weaker investment and growth, slower SOE reform through Danantara, and greater external vulnerability through rupiah weakness and reserve drawdowns. Given Indonesia’s high foreign investor participation, confidence is a pivotal test of policy predictability because shifts in foreign positioning can quickly transmit into FX depreciation and higher domestic yields, tightening fiscal affordability and external buffers. S&P framed the sovereign outlook as hinging on fiscal affordability, especially the credibility of the 3% deficit ceiling, amid a narrow revenue base, weaker revenue buoyancy, and a fiscal trajectory that is “more uncertain than usual,” with a baseline interest-to-revenue ratio around 14.4% and downside risk if it persistently exceeds 15% without a credible medium-term decline path. Monetary-policy credibility is the rapid transmission channel in this setup: S&P’s monitoring of Bank Indonesia’s commitment to exchange-rate stability matters because FX volatility can raise risk premia and yields, further pressuring financing conditions and fiscal metrics. On Danantara, S&P’s base case remains that consolidation into government debt is unlikely and crystallization risk is low, but governance weaknesses are a tail risk that could convert into a material contingent liability, making transparency on funding plans, safeguards, and guarantees a critical watchpoint.