Indonesian officials told S&P officials who visited Jakarta earlier this year that the credit rating agency was already late making an upgrade.
A rating upgrade usually means an economy can get cheaper cost of borrowing for its bonds. After the revision, Indonesia has now acquired an investment grade rating from all the three major rating agencies.
The Jakarta Composite Index jumped as much as 3.2 per cent to a record 5,825.2, extending gains this year to nearly 10 per cent.
"Indonesia's increased focus on realistic budgeting has reduced (the) likelihood that shortfall in future revenue would widen general government deficit significantly", he said.
"More upgrades are possible, with Fitch and Moody's potentially moving Indonesia up the scale further into investment grade", Wellian Wiranto, an economist at Oversea-Chinese Banking Corp.in Singapore, wrote in a note. The upgrade reflects "our assessment of reduced risks to Indonesia's fiscal metrics", it said.
Bank Indonesia was cited as key in sustaining growth and helping to ease the impact of any economic shocks.
S&P had previously cited a host of concerns, such as a failure to implement much-needed policies to help the economy, for their reluctance in giving Indonesia an investment grade rating.
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In June past year, it denied Indonesia its coveted investment grade again, citing weak government revenue collection and worsening corporate credit quality.
Since then, Widodo reshuffled his cabinet and appointed respected reformist, former managing director of the World Bank, Sri Mulyani Indrawati, as his finance minister.
Bharat Joshi, investment director at Aberdeen Asset Management in Jakarta, said the upgrade should cut Indonesia's cost of funds, which is relatively expensive compared with regional peers.
She then ran a tax amnesty program that many said was the world's most successful and is now overseeing a plan to overhaul the taxation system.
Indonesia dollar bonds jumped by over a point with the bonds due 2027 US455780BX3=TE now indicated at 104.625/105 cents on the dollar.
The upgrade may boost the appeal of Indonesian assets among conservative Japanese institutional investors and help attract as much as US$5 billion (RM21.6 billion) in funds, Goldman Sachs Group Inc. said in March.
In recent quarters, Indonesia has had annual growth of 5 percent or less.
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