Jakarta – Moody's Investors Service said Thursday that Indonesia's B3 country rating and stable outlook reflected the continued fragility of its access to foreign loans.

This was due to political uncertainty, unstable relations with foreign creditors, high public sector debt, continued weakness in the banking sector and a lack of investor confidence, Moody's said in its latest annual report.

The government of President Megawati Sukarnoputri, who came to power in August, "appears to have added some stability and made modest progress in reforms," Moody's vice president Steven Hess said in a statement accompanying the report. He added Indonesia had also met its budget deficit target and managed to sell the Indonesian Bank Restructuring Agency (IBRA).

But the report said the government's "ambitious" budget and asset sales targets for the coming years would be more difficult to achieve with the "mounting political pressures leading up to the 2004 parliamentary and presidential elections."

It also said the country's political challenges remained "formidable" and Megawati's ability to implement strong policies and win parliamentary approval, had yet to be demonstrated.

Support from foreign creditors, Moody's said, would hinge on the country's ability to improve and maintain good relations with creditors and on the pace of reform, which it said was still slow. "Net international reserves have risen, improving external liquidity, but the latter is still weak," Hess said, adding Indonesia still needed the support of foreign official creditors to maintain its external payments.

The government's total foreign and domestic debts had soared to 132 billion dollars by last year and the government is currently seeking a debt rescheduling from its main official donor group, the Paris Club.