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nternational rating agencies have cautioned Indonesia over the danger of shifting policy too soon, as the recent improvements in the economy could prompt the government to introduce drastic changes.

There is no guarantee that the returns of foreign-fund inflows to emerging markets can be sustained throughout the year, as the recent positive sentiment concerning the global economy is likely only the calm before the storm, according to Fitch Ratings and Moody'€™s Investors Service, two major rating agencies that have granted Indonesia investment grade status.

Fitch stated '€œrenewed market pressures are still possible'€ for Indonesia, a country that suffered badly from the capital outflows in 2013, but managed to survive and has even begun to recover in recent months.

Despite its narrowing current-account deficit, Indonesia is still one of the most vulnerable countries in the region if there is a sudden change in market sentiment. As Indonesia relied heavily on foreign inflows, the country'€™s external finances were its '€œkey rating weakness'€, Fitch said.

While Indonesia'€™s stocks, bonds and currency market have become top performers among emerging markets, it is still too early to call that a victory for Indonesian policymakers.

'€œThe authorities'€™ track record is still short,'€ Fitch wrote in its report, which was released on Thursday.

The report specifically cautioned policymakers over the temptation to '€œstretch the economy as far as possible'€ during times of relative calm, while stable policy measures should normally only be implemented during times of crisis.

'€œWe remain cautious and we urge the government to maintain policies that emphasize economic stability,'€ said Eddy Handali, the Jakarta-based ratings director with Fitch Ratings.

Indonesia was applauded for its success in restoring its policy credibility last year, when both fiscal and monetary authorities worked hand-in-hand to focus on maintaining stability in the financial market, a strategy that came at the expense of economic growth.

Bank Indonesia (BI) Governor Agus Martowardojo increased the key interest rate by 175 basis points to 7.5 percent, while Finance Minister Chatib Basri rolled out fiscal tightening reforms, such as imposing new taxes on importers as well as pushing down the state budget deficit.

The measures were well-received by the market, and helped to encourage a return of foreign funds into the country.

The rupiah has now become Asia'€™s best performer, as it has appreciated by 7 percent, reversing its 26 percent depreciation last year.

The country will witness a new administration after the elections this year and there are some concerns that there may be a shift in direction in macroeconomic policy, spooking potential investors, which could once again expose Indonesia to the risk of capital outflows.

With speculative capital still an important source of financing, there was a risk that concerns of tapering of US quantitative easing would continue to expose idiosyncratic risk in India and Indonesia, as both countries were gearing up for crucial general elections in 2014, according to Moody'€™s.

'€œThe uncertainty surrounding these elections has raised some question marks over the future direction of economic policies in both countries,'€ Moody'€™s wrote in a report released earlier this week.

'€œNotwithstanding recent external rebalancing, India and Indonesia are likely to remain reliant on portfolio investment inflows to fund their current-account deficits, and are thus vulnerable to capital flight,'€ the ratings agency warned.

Moody'€™s predicted that the gradual phasing out of US quantitative easing would still limit capital flows into Asia, consequently exerting additional upward pressure on interest rates and further tightening credit conditions.