The ratings agency said the long-term rating was raised to "BBB minus," which signifies adequate ability to repay national debts, from "BB plus," which indicates a country is vulnerable to default. The upgrade is a boost for President Joko "Jokowi" Widodo, a maverick politician from outside the usual governing elite who has made improving infrastructure in the sprawling Indonesian archipelago his signature policy.
"The government has built a political coalition with a parliamentary majority. Despite the government having a greater number of political parties, it has managed to appoint individuals who are generally viewed as competent to the key economic ministerial positions," S&P said a statement.
Until now, S&P was the only major credit rating agency to not assign Indonesia an investment grade rating. The ratings can influence a country's ability to attract foreign investment and upgrades can lower the cost of borrowing in foreign currencies.
Indonesia is the world's fourth most populous country, with more than 250 million people, and a member of the G-20 bloc of major industrial and developing economies. Poverty and malnutrition remain significant challenges for the country despite solid economic growth of about 5 percent a year.
S&P said corruption continues to be a problem in Indonesia and has "stunted" investment but it praised the overall stability that has emerged in Indonesian society following the chaotic end of decades of military dictatorship in 1998.
"News and information generally flow freely in Indonesia, with key policy and other changes well publicized and debated," it said.