The international rating institution Standard and Poors will raise Indonesias investment rating to the investment grade if the government achieves its tax amnesty redemption target, the DBS Banks economic team has predicted.

“Repatriated funds will also maintain the rupiahs resistance against the impact of the global volatility and the increase in the Feds interest rate,” senior DBS Group Research economist Philip Wee, said in an electronic message to Antara Friday.

Of the three international rating institutions – namely Standard and Poors (S and P), Fitch Ratings and Moodys Investor Service – only the S and P has not yet raised its rating of Indonesia to the investment grade.

Besides pushing state revenues and financing infrastructure projects, the tax amnesty funds will also help improve the governments fiscal credibility as reflected in the sound State Budget (APBN), Philip said.

The tax amnesty redemption funds could also serve as a reliable source for the government in maintaining its state budget deficit so that it would be under control and would not widen at the end of the year, he said.

Increasing flow of the tax amnesty repatriation funds and the good domestic economic fundamental conditions lead the DBS to lower its rupiah trade range projection against the United States (US) dollar to between 5.5 percent and 6.1 percent.

The US currency will not reach the Rp14 thousand level per US$1 in the coming one year, Philip estimated.

“Yet, it does not mean that rupiah is immune to the movements of global currencies. For example, when China devaluated its currency last January, the rupiah depreciated. The same case was also true when Britain decided to exit the European Union (Brexit) last June,” he said.

The plan of the Fed to increase its rate will remain to affect the movement of the rupiah values. The volatility of the rupiah in the future is mainly caused by Indonesias increasing external debts and the low foreign exchange reserves.

“The sales pressures against the rupiah will return if Indonesias short-term debts and current transaction deficit are worsening,” he said.

Apart from that the domestic economic fundamental conditions have increased investors trust. The return to five percent range of Indonesias economic growth followed by controlled inflation and current transaction deficit have caused the trust on Indonesias economic prospect to increase.

“These factors contribute to the rupiahs resistance during the global volatility period this year,” he said.

source: antaranews.com