Jakarta – An international ratings agency said Thursday it may upgrade Indonesia's credit ratings but warned that the country remains vulnerable to "unforeseen shocks." Moody's Investors Service said in a statement it is reviewing four ratings for a possible upgrade following a substantial cut in government debt ratios and reduced external vulnerability.

They are the B3 foreign currency country ceiling for debt; the B3 rating of the government's foreign currency bonds; the B3 domestic currency issuer rating; and the Caa1 foreign currency bank deposit ceiling.

Moody's credited fiscal policy and the strengthening rupiah for the improved debt ratios.

"In addition, the external vulnerability of the country has been considerably reduced as the current account has remained in surplus, external debt of both the government and the private sector has been restructured, and international reserves have risen." The agency warned, however, that Indonesia "remains vulnerable to unforeseen shocks, either internal or external" and said growth is still not fast enough to create jobs and improve living standards. "As a result, political and social stability could also be vulnerable to any negative shocks. Improvements in the investment climate could alleviate some of this problem." Indonesia has indicated it will not seek a new IMF programme. It will need an additional three billion dollars or so of financing in 2004 to compensate for the loss of the Paris Club arrangement.

The government has won praise for restoring macroeconomic stability but is nowhere near achieving the six percent annual growth which the IMF says is needed significantly to reduce poverty and unemployment.

The economy grew 3.43 percent in the first quarter compared with a year earlier.