Jakarta – A booming economy, falling debt and market-friendly reforms could see Indonesia secure an investment grade credit rating as early as this year, putting it on a par with BRIC nations and enabling more institutional interest in its bonds.

That trajectory, however, is threatened by vested interests who stand to lose out if measures aimed at increasing transparency and creating a level playing field succeed. Fund inflows could also be reversed if policy makers fail to keep a lid on inflation, or introduce more steps to control capital.

Following is the summary of two out of five key Indonesia risks:

Corruption and governance

Yudhoyono was elected on promises to tackle graft, but early in his second term the Corruption Eradication Commission (KPK) has been under attack with attempts by senior law enforcement officials to frame two KPK leaders. Many felt Yudhoyono was slow to defend his top graft-busters. Transparency International's latest Corruption Perception Index (CPI) put Indonesia's score at 2.8 out of 10 – the same as in 2009 – signalling a perception that there has been no progress on corruption eradication.

In late November parliament choose soft-spoken academic Busjro Muqoddas to be the new head of the KPK, but gave him just a year to complete the tenure vacancy caused by the jailing of his predecessor, Antasari Azhar, for murder. Analysts said it was a positive sign that the KPK now had a leader to drive the anti-graft campaign but doubt how effective he can be in 12 months.

Yudhoyono followed up the KPK appointment by naming Basrief Arief as attorney general – a position that is meant to work with the KPK to try graft suspects – but the choice of an internal candidate in a body widely seen as being corrupt disappointed campaigners, who said this signaled the president was not committed to reform.

What to Watch:

• How the new KPK chief performs and how the anti-graft body uses new powers to investigate unusual financial transactions.
• The effectiveness of the presidential delivery unit in tackling legal reform and other issues that deter investors.
• The pace of reform of Indonesia's civil service, police and courts. Investors have already had to adjust expectations.

Security

Suicide bombings at two luxury hotels in Jakarta in July 2009 were the first major attacks in Indonesia since 2005 and raised concerns that the threat from militants was again on the rise. Since then, the killings of Noordin Mohammad Top and, more recently, the bomb-making expert Dulmatin, have significantly reduced that threat, but some risk persists.

Last year, police discovered a new network of armed militants operating a secret training base in Aceh in Sumatra province. The group wanted to create an Islamic state, police said.

In late June, police captured preacher and suspected Aceh group member Abdullah Sonata, who had been jailed in the past but released early. His return to militancy raises questions about effectiveness of prison rehabilitation programmes.

Police also arrested firebrand cleric Abu Bakar Bashir in August for allegedly supporting and financing the Aceh group. Police have failed in the past to pin terrorism charges on Bashir, and analysts say it is crucial they back up the charges this time, or risk turning Bashir into even more of a martyr. His trial is due to start early this year.

What to watch:

Ability of militants to regroup and launch more attacks. If remaining militants are able to establish firm enough links with al Qaeda or allies to secure sustained funding, expertise and recruits, the threat may be far from over. Still, Indonesia's markets have proven highly resilient to militant attacks and unless there is a sustained deterioration in security, any sell-off would be limited and brief.