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July 17, 2008

Indonesia Central Bank: Economy rebounds from fuel price hike
Indonesia's economy has rebounded from the impact of a hike in subsidised fuel prices despite rising interest rates and high inflation, Antara news agency quoted the central bank governor as saying Wednesday.

"I have reported to the president that our economy has begun improving. At the beginning the effect of the fuel price rise gave our economy a slight fever, but we have overcome this," Boediono told reporters.

He said after a meeting with President Susilo Bambang Yudhoyono that foreign exchange reserves were at a healthy $59.6 billion and inflation had "become normal again" following a jump from the fuel hike.

Consumer prices likely peaked last month and would start easing by the end of the year.

The central bank raised its key interest rate by 25 basis points on July 3 to rein in an inflationary surge springing from the 30-percent average hike in fuel prices in May.

The third rise in three months took the benchmark rate to 8.75 percent and came as surging prices across Asia force the region to contemplate unpopular hikes in borrowing costs.

Boediono has said he expects inflation to range between 11.5 and 12.5 percent by year's end, before easing off to between 6.5 and 7.5 percent by the end of 2009. Inflation was running at 11.03 percent in June.

The finance ministry said Southeast Asia's biggest economy would likely grow 6.19 percent in 2008.

Indonesia's reserves should be strengthened further with the expected sales of several state firms this year either via public offerings or through offers to strategic investors.

State-owned enterprises minister Sofyan Djalil said parliament would approve plans to privatise companies such as PT Krakatau Steel and units of plantation firm PT Perkebunan Nusantara next month.

Meanwhile, the government estimates its fuel subsidy in 2008 will amount to between 179 trillion rupiah ($19.55 billions) and 180 trillion rupiah, or significantly higher than the 128.82 trillion rupiah set in the revised 2008 state budget.

Presenting its 2008 first semester report and second semester projection to the House of Representatives budget committee on Wednesday, the government said the amount spent on various subsidies in the first semester of 2008 reached 91.7 trillion rupiah.

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