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Indonesia cuts 2009 budget inflation target

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October 15, 2008

Indonesia cuts 2009 budget inflation target
Indonesia's parliamentary budget commission has approved a downward revision in its 2009 inflation forecast to 6.2 percent from 7 percent to reflect the impact of lower oil prices, Reuters quoted legislators as saying Tuesday.

The finance ministry submitted revisions for the 2009 state budget, including key economic indicators, on Monday and the budget commission deliberated them on Monday night.

"In the future, actually inflation will ease without too much effort from us because our biggest inflationary pressure came from oil prices, which have been declining," Harry Azhar Azis, the coordinator of the working commission, said.

Indonesia's annual inflation jumped to a two-year high of 12.14 percent in September. The central bank is targeting year-end inflation of 11.5-12.5 percent.

The commission also approved a 7.5 percent average interest rate forecast for 3-month central bank certificates, compared with 8.5 percent previously.

Aviliani, an economist at thinktank INDEF, also said inflation should ease because of the decrease in commodity prices, "as long as the currency is well-guarded."

But Anton Gunawan, an economist at Bank Danamon, said both forecasts for inflation and the 7.5 percent interest rate for 3-month central bank certificates appeared too low.

The 2009 state budget revisions are part of measures introduced by the Indonesian government last week aimed at bolstering confidence in the financial system.

On Monday, Indonesia raised its guarantee on bank deposits to head off a potential run on lenders and eased central bank rules so as to provide more liquidity.

Indonesian financial markets have recovered this week in line with regional markets after authorities suspended the stock market last week following sharp falls and brought in measures to try and restore confidence.

The benchmark composite stock index .JKSE was trading up 6.79 percent on 0526 GMT, while the rupiah currency <IDR=> was also trading up about 1 percent at 9,705 per dollar.

Indonesia was badly hit by the 1997-98 Asian financial crisis when thousands of people queued outside the country's troubled banks to withdraw their money, the economy collapsed, and riots broke out in major cities, forcing then-President Suharto to resign.

Separately, President Susilo Bambang Yudhoyono called upon Indonesians to avoid over-dependence on exports.

"We have to strengthen the domestic economy, including our domestic markets, our economic growth agenda, so that we do not rely too much on exports which can always be a threat if the global economy slides into recession," Yudhoyono told reporters in Indonesia's second-biggest city of Surabaya.

Indonesia's economy grew 6.3 percent last year, the fastest in more than a decade, aided by exports of commodities including palm oil, rubber, gas, and a steady drop in interest rates.

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