(Feb 6): Indonesia’s stocks slid and credit default swaps tracking the nation’s sovereign debt widened the most in over four months after Moody’s Ratings lowered its outlook on the nation’s credit to negative.
Stocks tumbled as much as 2.7% while the cost to insure Indonesian debt against default climbed by 4.3 basis points to around 80 basis points on Friday, the biggest increase among Asian sovereigns, according to a trader. If the move holds, that would be the most widening since late September, according to data compiled by Bloomberg.
Meanwhile, the rupiah fell as much as 0.3% to 16,885.
While Moody’s reaffirmed Indonesia’s Baa2 rating, the outlook cut from stable indicates that the rating may be downgraded if the government doesn’t take sufficient steps to address fiscal pressures, a weakening in foreign reserves and debt concerns related to state-owned firms, it said in a statement on Thursday.
The outlook cut came just a week after index provider MSCI Inc warned that Indonesia could be downgraded to frontier status because of a lack of liquidity and transparency in the stock market, triggering a massive equities sell-off. It underscores the challenges President Prabowo Subianto’s administration faces as it tries to restore market confidence.
See also: Market revival is underway and Singapore will continue to 'raise the game'
Policymakers rushed to respond on Thursday. Bank Indonesia governor Perry Warjiyo said in a statement that the outlook downgrade “does not reflect any weakening in Indonesia’s economic fundamentals”. The Finance Ministry pledged to continue to transform the economy and revive growth engines while ensuring that “every potential risk will be properly managed”.
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