Traffic-Jam Curse May Ease on Indonesia Investment-Outlook Boost: Economy

By Novrida Manurung
December 16, 2011 (Bloomberg)

Indonesia’s plan for guidelines on acquiring land for infrastructure projects and a boost to the nation’s credit rating augur improved prospects for investment in the world’s fourth-most populous country.

Southeast Asia’s largest economy regained investment grade for its sovereign debt yesterday after 14 years, as Fitch Ratings raised the long-term foreign and local currency rating to BBB-. The Indonesian parliament approved a bill today that will empower the government to take over land for development and ensure adequate compensation for owners.

“Extended access for financing” sought by Indonesian companies may be forthcoming as the sovereign rating strengthens, Helmi Arman, an economist at Citigroup Inc. in Jakarta, said by phone after Fitch announced the rating change late yesterday. “There are still other challenges to overcome in terms of the investment climate. I’m stuck here in a traffic jam for two hours so that’s one example; it’s infrastructure.”

The land legislation, which had been debated in parliament since March, tackles a key impediment to President Susilo Bambang Yudhoyono’s target to boost growth to as much as 6.6 percent. Infrastructure bottlenecks, along with corruption and gaps in worker skills, are among the challenges for Indonesia, according to Standard Chartered Plc, which says the nation can become one of the world’s 10 biggest economies by 2020.

Stocks Climb

Indonesia’s currency is set to rise for the first day in four today, gaining 0.1 percent to 9,081 a dollar as of 2:11 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. Bonds climbed earlier, with the yield on Indonesia’s 8.8 percent Islamic dollar notes due in 2014 dropping the most since May last year, according to data from Royal Bank of Scotland Group Plc.

The Jakarta Composite (JCI) index of stocks added 1.8 percent as PT Astra International, the nation’s largest automotive retailer and the biggest stock by market value, rose 4.1 percent. PT Citra Marga Nusaphala Persada, a toll-road operator, advanced 1.2 percent, set for the first increase in three days.

Elsewhere in Asia today, a report from Singapore showed exports unexpectedly rose in November as pharmaceutical sales countered weak demand for electronics. Non-oil domestic exports climbed 1.6 percent from a year earlier, after a revised 16.3 percent slide in October.

India refrained from raising interest rates today for the first time in eight meetings as inflation cools and the fallout from Europe’s debt crisis threatens growth. The rupee pared gains and bonds rose after the Reserve Bank of India left the repurchase rate at 8.5 percent, as predicted by all 14 analysts in a Bloomberg News survey.

India Rates

Governor Duvvuri Subbarao said he won’t speculate when the central bank will start reducing borrowing costs, saying a “rate cut is an event some way ahead.”

In Europe, Russia’s government is scheduled to release reports on retail sales and the unemployment rate in November. The median estimates in Bloomberg surveys of economists are for a 0.5 percent fall in retail sales from October and the jobless rate rising to 6.5 percent from 6.4 percent a month earlier.

Ireland’s government is slated to release a report on third-quarter gross domestic product, Spain is issuing a report on labor costs from July through September, and a French indicator is expected to show weaker business confidence this month. In the U.S., a Labor Department report is expected to show consumer prices gained 0.1 percent in November from the previous month, according to the median estimate of 82 economists surveyed.

Yesterday’s Fitch upgrade puts Indonesia on the same level as India. The outlook on the rating is stable.

Full Circle

The nation lost the investment grade rating in December 1997, and its return is an endorsement of Yudhoyono’s efforts to rejuvenate the economy, underscoring the progress made since the 1997-98 Asian financial crisis when the country was forced to seek a bailout from the International Monetary Fund.

Indonesia, which avoided the recession some neighbors suffered during the 2009 global slump, has expanded more than 6 percent this year even as Europe’s debt crisis threatens Asia. Still, gains under the president’s seven-year rule have been undermined by corruption scandals and project delays caused by land disputes, which have hampered efforts to lure investment.

“Indonesia has now come full circle since the Asian financial crisis,” Robert Prior-Wandesforde, Singapore-based director of Asian economics at Credit Suisse Group AG, said in a note today. “The passage of the bill is expected to lead to a much-needed boost to infrastructure spending by speeding up the process of acquiring land for the purposes of building roads, railways and the like.”

Growth Target

Moody’s Investors Service raised the nation’s rating in January to Ba1. In April, Standard & Poor’s increased Indonesia’s long-term foreign-currency rating one level to BB+ from BB, with a positive outlook. The ratings are one level below investment grade. Citigroup’s Arman said they will probably follow Fitch’s move to upgrade Indonesia “eventually.”

Yudhoyono targets growth of as much as 6.6 percent on average through the remainder of his term ending in 2014. Indonesia’s 2011-2025 development plan seeks 4,012 trillion rupiah ($440 billion) of investment, with about 1,786 trillion rupiah assigned to items such as highways, harbors and power plants.

The land legislation passed by lawmakers today will set a deadline of 74 working days to resolve all legal issues in the event of objections to any land acquisition for infrastructure projects. An independent appraiser will decide on compensation in the form of money or land relocation for people giving up the property for development.

Toll Roads

During the president’s first five-year term, only 125 kilometers (78 miles) of toll roads were built, compared with China’s 4,719 kilometers of toll roads in 2009 alone. A 1961 law said that only the president could seize land if owners refuse to sell. Yudhoyono was elected to a second term in 2009.

“This is a good signal for investors to get involved in infrastructure projects,” Wisnu Wardana, an economist at PT BNI Securities in Jakarta, said today. “Combined with Fitch’s upgrade, it will give new power to the government to boost projects. We can see significant impact to Indonesia’s economy starting from 2013.”

To contact the reporter on this story: Novrida Manurung in Jakarta at nmanurung@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net