By Ankur Banerjee, Stefanno Sulaiman and Gayatri Suroyo
JAKARTA, Feb 5 (Reuters) – Moody’s said on Thursday it had cut Indonesia’s credit rating outlook to negative from stable, citing reduced predictability in policymaking days after MSCI flagged transparency issues that triggered a market rout of more than $80 billion.
Indonesia’s chief economic minister Airlangga Hartarto downplayed the step, saying ratings agencies and global financial markets were “yet to understand” the country’s new growth strategy.
The change in outlook is a fresh hit to Indonesia, a $1.4 trillion G20 economy under the stewardship of President Prabowo Subianto, with investors cooling on the country due to concerns over policy uncertainty, including a widening fiscal deficit and central bank independence.
Moody’s maintained its Baa2 rating but said the shift to a negative outlook from stable reflected risks to policy effectiveness and signs of weakening governance.
“If sustained, the trend could erode Indonesia’s long-established policy credibility, which has supported solid economic growth and macroeconomic, fiscal and financial stability,” the ratings agency said.
‘OUR BUDGET IS A LITTLE DIFFERENT’
Airlangga, speaking at an event held by the country’s financial regulator in Jakarta on Thursday evening, said the government would use the response process to provide the ratings agency with more explanation.
“It’s true that our budget is a little different because we are spending big for the president’s programmes such as free meals, red and white cooperatives, and public services,” he said, referring to projects that include efforts to revitalize rural economies.
But, he added, a sovereign wealth fund set up by Prabowo, Danantara Indonesia, would be driving growth from investment, instead of from the government’s budget.
Indonesia’s central bank governor Perry Warjiyo said the ratings outlook cut did not mean the country’s economic fundamentals were weakening, adding its economic growth remains solid.
“Financial systems stability remains well maintained, supported by adequate liquidity, strong banking capitals, and low credit risks,” he said in a statement.
Bank Indonesia said it would strengthen policy synergy to maintain macroeconomic and financial system stability, and “coordinate with the government to strengthen communication about policy in order to maintain market confidence”.
BIG GROWTH AMBITIONS
Indonesia earlier on Thursday reported its best economic expansion in three years in 2025 as growth accelerated more than expected in the fourth quarter on robust household spending and strong investment, according to official data.
Some economists questioned the veracity of the GDP data, pointing to declining 2025 tax revenues and other indicators, including flat growth in foreign direct investment.
Indonesia’s president’s office did not immediately respond to requests for comment on the move by Moody’s.
Prabowo has promised to ramp up Indonesia’s steady growth of around 5% over the last few years to 8% during his term.
Since taking power in late 2024, he has taken steps to try to achieve that, including sacking widely respected Finance Minister Sri Mulyani Indrawati, known for her fiscally conservative stance, and replacing her with pro-growth economist Purbaya Yudhi Sadewa.
Indonesia’s international bonds slipped following the Moody’s announcement. Longer-dated dollar denominated bonds, which had been flat for most of the trading day, were down between 0.3-0.5 cents, with many trading at their weakest level in five months, Tradeweb data showed.
Indonesia’s Finance Ministry said it “appreciates” Moody’s sustained rating, and that the government was undertaking “economic transformation” to revitalize growth.
“The government continues to ensure that all potential risks are properly managed,” the ministry said in a statement after the Moody’s outlook change.
A slew of Indonesian officials resigned on Friday after MSCI warned two days earlier that concerns over ownership and trading transparency in Indonesian stocks could prompt a downgrade to “frontier” status if the issues were not resolved by May.
GOVERNANCE REFORMS PROMISED
Indonesia has since promised capital market governance reforms and several measures to address MSCI’s concerns.
A negative outlook means Moody’s next move could potentially be a downgrade in ratings.
Moody’s said it would downgrade if there is a sustained shift to a more expansionary fiscal policy without accompanying revenue reform, a significant deterioration in external position due to capital outflows, or a material weakening in state companies’ health.
Indonesia is currently rated Baa2, the agency’s second-lowest rating for investment grade.
“This is a confidence test, not a credit event,” said Mohit Mirpuri, a fund manager at Singapore-based SGMC Capital.
“Moody’s is flagging execution risk rather than balance-sheet stress, and we expect the government to address governance concerns to stabilise sentiment over time,” he said.
(Reporting by Ankur Banerjee in Singpaore, Gursimran Kaur in Bengaluru, Gayatri Suroyo, Stefanno Sulaiman and Stanley Widianto in Jakarta; Additional reporting by Karin Strohecker in London; Writing by Gibran Peshimam; Editing by Bernadette Baum, Mark Potter, Martin Petty)
