The sovereign rating was lifted to BBB- from BB+ with a stable outlook, S&P said on Friday, citing an improvement in the budget.
Speaking at an investment conference on late on Thursday Bank Indonesia's (BI) deputy governor Perry Warjiyo said S&P should now upgrade Indonesia's ratings given that all aspects of the economy have improved.
The upgrade boosted Jakarta Stock Index 3.2 percent to a record high of 5,825.
Fund managers say the investment grade from S&P, which matches the ratings awarded by Fitch and Moody's years ago, will give Indonesia access to a wider pool of investors. "This rating upgrade should drive valuations higher", said Taye Shim, an analyst at Mirae Asset Sekuritas Indonesia. The upgrade reflects "our assessment of reduced risks to Indonesia's fiscal metrics", it said.
Gundy Cahyadi, an economist from Singapore's DBS Bank, said that "in terms of impact, the most significant is likely to be on FDI (foreign direct investment) flows in the coming years". It gave Indonesia a positive outlook in May 2015 for President Joko Widodo's bold move to remove gasoline subsidies.
S&P's last statement on Indonesia's sovereign ratings in June 2016 mentioned worsening corporate credit quality as the main reason for holding back an upgrade.
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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.
The decision came after prominent reformist Sri Mulyani Indrawati, a former World Bank managing director, was appointed finance minister previous year, in a move cheered by markets.
She then ran a tax amnesty programme that many said was the world's most successful and is now overseeing a plan to overhaul the taxation system. The cost of insuring against default on its sovereign debt also fell.
Indonesia's current account deficit shrank to one per cent in the first quarter, Mr Warjiyo said, significantly smaller than the deficit in 2013, which was more than 4 per cent, which had led to heavy capital outflows and a more than 20 percent drop in the rupiah currency.
Indrawati said the government would now focus on keeping the state budget credible and effective.
Having the investment grade rating from the S&P, Indonesia is likely to be able to lure conservative Japanese institutional investors, according to economic experts.
In the map below, the higher the health-care quality index, or HAQ, the better the level of care, according to the study. These include tuberculosis, several forms of treatable cancer and cardiovascular disease, for example.
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