Jakarta – Standard Poor's Ratings Services Wednesday raised its long-term foreign and local currency ratings on Indonesia by one notch to reflect the country's good fiscal performance and growing stability in economic conditions.

It said the foreign currency rating was raised to B from B-minus and the local currency rating to B-plus from B. The short-term foreign currency rating was also raised one notch to B, the same level as the short-term local currency rating.

"The government has shown its commitment to reducing central government fiscal deficits to less than 1.5 percent from 1.8 percent of GDP [Gross Domestic Product] this year and has budgeted a primary surplus of about 2.0 percent in 2004," said Takahira Ogawa, Standard and Poor's credit analyst and director in the Asia-Pacific Sovereign Ratings Group.

A stable rupiah and increased foreign investment in bank and corporate assets are improving international liquidity in Indonesia despite the government's decision not to extend an International Monetary Fund economic program after the end of this year and intermittent terrorist attacks.

It said the ratings are constrained by political uncertainty. "Although in terms of recent political history, there is relative political stability, Indonesia's democracy is still in its infancy and there remains the risk of disruptions that could adversely affect key economic policies, undermine the government's new and existing loan commitments, or lead to a widening of the financing gap," Ogawa said.

"In this regard, next year's general and presidential elections are important not only to judge the course of democracy in Indonesia but also political stability in the country," he added.

Indonesia is also still suffering from a heavy debt burden. The public sector's total net debt peaked at about 97 percent of GDP in 2000 but is expected to drop to 77 percent by the end of 2003, S and P said, adding that the country remains vulnerable to exchange rate fluctuations and other variables.