SOVEREIGN CREDIT RATINGS AND POLICY IMPLICATIONS: CASE OF INDONESIA

• Main Author: Darwis, Firman
• Format: Dissertations
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/80207
• Institution: Institut Teknologi Bandung

This research explores the effect of an additional variable proposed for use in Sovereign Credit Rating assessments by rating agencies, namely Credit Default Swap (CDS), as a measure of the probability of default in line with criticism of the predictive capacity of ratings using historical data and information. The research also aims to identify the main determinants of sovereign credit ratings in Indonesia and its peer group countries, namely the Philippines, Thailand, and Russia, from 2004 to 2022 by considering the indicators used as variables by the leading rating agencies. The methodology selection was based on suitability to the data, and the Vector Error Correction Model (VECM) was produced as the most appropriate methodology. There has yet to be any previous research that tested CDS as an indicator. This research also assesses Indonesian investor relations activities in building and maintaining a positive perception of the Indonesian economy as a debt securities issuer, referring to investor relations theory and communication strategies to strengthen efforts in formulating a framework for investor relations communication strategies in the Republic of Indonesia. Produce a communication strategy framework to develop more precise, focused, and goal-oriented work programs and communication strategies. Empirical results show that the best model to explain the relationship between the variables tested is a model that adds the CDS variable. Current account balance, inflation, foreign exchange reserves, government debt, and CDS significantly affect Indonesia’s and its peer group countries sovereign credit ratings. Authorities that manage relationships with rating agencies are expected to develop more focused strategies in considering those indicators. This research concludes with policy implications and recommendations for the authorities to collaborate further with rating agencies and manage Indonesia's sovereign credit rating.