Moody's Investors Service has assigned a foreign currency rating of Ba3 with a stable outlook to the Republic of Indonesia's forthcoming Global Sukuk.

Aninda Mitra, lead sovereign analyst for Indonesia at Moody's, said: "On account of the ongoing global crisis, the year on year real growth rate of Indonesia's economy may slow to 3%-3.5% this year, down from 6% in 2008.

Weakening global demand will hurt Indonesia's exports which remain heavily dependent on commodities, and the investment cycle will also decelerate. Nonetheless, this is still a robust growth rate in the sharply weakening global environment."

Mitra said Indonesia's economic resilience was supported by a "large, domestic demand driven economy; relatively lower exposure to global trade and capital flows than at most other East Asian economies; and improving institutional capabilities". He flagged the fact its vulnerability to external shocks is limited by the declining trend in external indebtedness, adequate foreign currency reserves.

"At a time of global de-leveraging, the lack of a more stable investor base for government bonds coupled with the dependence on foreign financing of the government deficits has raised Indonesia's debt market volatility more than its rating peers," said Mitra.

Indonesia's external and the government's fiscal financing needs are not onerous, with the country's overall short-term external financing needs - including foreign bank deposits - were positioned at around 65% of currently available foreign currency reserves. "Moreover, several precautionary lines of credit with multilateral institutions and foreign currency swap arrangements on a bilateral basis, and Indonesian authorities' widening range of issuance strategies would also broadly support the balance of payments as well as the fiscal position."

Furthermore, financial risks from derivatives, or the un-hedged foreign currency debt of the corporate sector or currency mismatches in the banking sector's assets and liabilities were low and supervision and enforcement of regulations have improved.

Mitra said: "As a result, the banking and corporate sector will encounter more stress, but Indonesia faces the ongoing global financial volatility from a stronger position than at the time of the 1997 crisis."