JAKARTA, Feb 5: Moody’s Investors Service on Monday raised the outlook for Indonesia’s B1 foreign and local currency government bonds from stable to positive, pointing to improvements in the country’s debt ratios.

“Indonesia’s relative political stability means that the government’s prudent fiscal policy is likely to continue for the next several years,” Moody’s vice president Steven Hess said in a statement.

Small budget deficits in recent years and high growth had contributed to a substantial decline in the ratio of government debt to gross domestic product.

At 42 per cent at the end of last year, “this ratio is now comparable to the ratios of countries rated more highly,” Hess said.

He said Indonesia’s external financial position was also improving.

Its current account increased markedly in 2006 which resulted in an increase in international reserves and the early repayment of all Indonesia's debt to the International Monetary Fund.

“We believe that this trend will continue during the next few years, although its pace could be affected by changes in commodity prices,” Hess said Hess.

“High prices for Indonesia’s export commodities have benefited its balance-of-payments performance during the past two years.”

Hess said further reforms were needed if Southeast Asia’s largest economy was to attract much-needed foreign investment.

“Although foreign direct investment has risen in the past two years, it could be considerably higher with better laws and regulations affecting the investment environment,” he said.

Despite the improved rating outlook, Indonesia’s bonds are still at junk status and several steps below investment grade.—AFP