HONG KONG (Dow Jones): Fitch Inc. said Friday it raised its

HONG KONG (Dow Jones): Fitch Inc. said Friday it raised its outlook on Indonesia's sovereign rating to positive from stable, after the reinstatement of a stalled International Monetary Fund program.

Fitch said its B rating for Indonesia's long-term foreign currency and long-term local currency is unchanged, as is its B rating for short-term foreign currency, applicable to issues with an original maturity of up to one year.

Fitch said the IMF's approval on Sept. 10 of a disbursement of US$395 million under Indonesia's three-year extended fund facility, which had been suspended since December 2000, marked the culmination of several months of positive political and economic developments.

"Political risk has diminished considerably with the peaceful mid-term transition of the presidency from the lame-duck administration of Abdurrahman Wahid to Megawati Soekarnoputri in late July," it said.

Fitch argues that the Megawati administration offers the best prospect yet of economic reform and recovery.

"(But) despite its more upbeat assessment, Fitch says high levels of sovereign indebtedness continue to constrain the ratings to low sub-investment grade, putting Indonesia's on a par with Turkey and Argentina," the statement said.

It said future rating actions will depend on the government's continued commitment to macro-economic stabilization and reform, with particular reference to privatization and asset sales, and corporate and financial sector restructuring.

Public debt management will also be key, it said, as well as the progress of fiscal decentralization.