Growing confidence in Indonesia has led the sovereign to move fractionally above plunging India in recent days, to 59th spot in ECR’s global rankings, on a score of 52.7.
Indonesia’s ranking has remained relatively constant since 2010, albeit rising two places from 61, while India’s has fallen from 49 to 60.
The sovereigns are both rated BBB- by Fitch and Baa3 by Moody’s, but are differentiated by S&P, with India at BBB- (investment grade) and Indonesia at BB+ (speculative grade), contradicting the findings of ECR’s constantly updated survey.
Although India’s political and structural risk assessment scores remain higher than Indonesia’s, the latter comes out more favourably in terms of economic risk. And here there is a clear distinction to be made between bank stability and monetary policy/currency stability scores that are lower relative to India, and the large differential in government finances scores, favouring Indonesia, which appear to be justified by the data.
Whereas India will have a gross fiscal deficit for its central and state governments close to 8% of GDP in 2012, according to the Organization for Economic Cooperation and Development, Indonesia’s total fiscal deficit will be much smaller, at 2% of GDP.
Indonesia certainly has its problems, ranging from corruption and institutional risks (Institutional weakness threatens Indonesia's economy-RAM) to unsustainable credit growth (Indonesia credit sustainability at risk: ANZ), as well as exposure to a slowing Chinese economy. However, Indonesia performed strongly in the second quarter, with real GDP growth amounting to 6.4% year on year, underpinned by strong business and consumer confidence – supporting both the government’s finances and its improving ECR ranking.