Indonesia, Asia's third-fastest expanding major economy, needs to gradually build its foreign reserves and follow a "cautious" monetary policy stance to keep investor confidence, the International Monetary Fund said.

The Washington-based agency also recommended Indonesia boost spending in a statement released Wednesday, saying the government has room for a bigger fiscal deficit.

Indonesia's reserves fell to $57.58 billion in June from a record $60.56 billion in July 2008. Higher foreign reserves and attractive asset prices may keep investors from pulling money from the Southeast Asian nation should another global economic crisis arise, the IMF said.

"Although the economic outlook for 2009 remains positive, another round of global risk aversion could adversely affect external liquidity, demand, and growth prospects for Indonesia," the IMF said. It's "prudent" for the nation to build larger reserves, implement its stimulus plan and "strengthen monetary policy framework" to ensure macroeconomic and financial stability, it said.

Indonesia's reserves are less than 3 percent of China's $2.1 trillion of assets. The $433 billion economy may expand 3.5 percent, this year making it the fastest growing in Asia after India and China, according to IMF data. Growth may accelerate to 4.5 percent next year, the lender said.