Peaceful Conclusion of Indonesia's Polls Favorable for Investment, Says Fitch

The further build-up of Indonesia's democratic track record is credit supportive, assuming that the hand-over of power remains peaceful, says Fitch Ratings.

Fitch maintains that the key issue for Indonesia's credit and sovereign rating over the next six to 12 months is the extent to which the government continues to prioritize economic stability over high GDP growth.

The official results for Indonesia's presidential election have confirmed earlier "quick counts" that former Jakarta governor Joko Widodo (Jokowi) has won by a margin of six percentage points (53% to 47%).

Jokowi's opponent, Prabowo Subianto, has yet to formally concede defeat.

A peaceful conclusion of this electoral cycle in Indonesia, with the confirmation of a smooth handover, will end months of political uncertainty, and should be favourable for investment, says Fitch.

Vulnerable to external pressures

Indonesia is vulnerable to external pressures owing to the current account flipping into deficit in 2012 (to which loose monetary policy had contributed); relatively high commodity dependence amid weakening prices for Indonesia's key exports; and shallow domestic financial markets.

The effect of the weaker rupiah on the cost of imported fuel has prompted government to revise up its budget deficit projection to 2.4% of GDP from 1.7%. Fitch believes that the assumptions factored in on subsidy spending may not be achievable without a further revision of retail fuel prices.

The risks from increased financial market volatility related to potential Fed tightening remain, in addition to the fiscal impact of rising energy costs.

The next government's cabinet picks, budget and other potential policy pronouncements in the coming months will provide important indications as to how Jokowi will manage his political mandate - and the potential impact on the country's credit or rating.

Jokowi has built a reputation for starting new infrastructure projects in Jakarta, but has no track record at the national level.

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