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COMMENTARY ON US-INDONESIA COMMERCIAL DEVELOPMENTS FROM THE AMERICAN INDONESIAN CHAMBER OF COMMERCE

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Wednesday, August 31, 2011

What's In a Sovereign Rating ?


I admit to not being a savvy investor. I am basically the type that lets a professional figure out what to do with my money. My big investment decision, like many people, was buying a home. I know enough to know that having a strong sovereign rating has a definitite correlation with the cost of capital. Every step Indonesia has made to achieving investment grade lowers borrowing costs. The ratings help lenders assess risk but their effect on investors may be more complex. For example, the average rate of return on the Jakarta Stock Exchange over the past 10 years--a time when Indonesia's sovereign rating was BB- to BB+-- was 29%. If during the same period --a time when the US sovereign was AAA-- the Dow had kept pace, it would be over 100,000 today. Of course, some would call this an absurd comparison but it just shows you what you can do when your sovereign rating is not even at an A level. Savvy investors know how to find value looking beyond the indices and Indonesia is proving that day in and day out even though its sovereign rating has yet to achieve investment grade. Perhaps the anticipation of it occurring is more beneficial than if it already had it. Seduction often brings more pleasure than conquest.



Idul Fitri

All of us at AICC extend our warmest best wishes to our Indonesian colleagues celebrating Lebaran, the end of the annual fasting period.

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President of the American Indonesian Chamber of Commerce, a private not for profit membership organization based in NY.

These views do not necessarily represent those of the American Indonesian Chamber of Commerce or its members.

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