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August 10, 2008

Indonesia: Govt may set oil price at $130 in state budget
The government may assume an oil price of $130 for the 2009 state budget, to be delivered before the House of Representatives by President Susilo Bambang Yudhoyono on August 16, a local daily reported Saturday.

"We realise that oil prices are hard to predict, so we consider it (oil price of $130 per barrel) a valid estimate," The Jakarta Post quoted Anny Ratnawati, a director general of budgetary affairs at the Finance Ministry, as saying.

The price of crude oil dropped on Friday to $117.70 per barrel at the New York Mercantile Exchange, after reaching a record high of $147.27 on July 11, Bloomberg reported. The price of oil has fallen 5.6 percent this week.

Analysts have said the price of crude oil may fall again next week because of slower demand.

The assumption in the budget is lower than that announced on July 22 when the government said the Indonesia Crude Price -- the country's benchmark oil price -- would be set at $140 per barrel.

As in previous years, the President will deliver the state address and the government's statements on the 2009 state budget bill on August 16, the day before Indonesia’s independence day.

The government was forced to revise the state budget early this year as soaring oil prices stretched the budget. It then raised subsidized fuel prices on May 24 by an average 28.7 percent to save the budget.

The fuel price increases pushed year-on-year inflation up to 11.03 percent in June and 11.7 percent in July. In May, year-on-year inflation stood at 10.38 percent.

Yet the economy still managed to grow in the first semester by about 6.3 percent thanks to robust consumption and investment, according to government estimates.

Official figures on the first semester economic growth will be released by the Central Statistics Agency (BPS) on Aug. 15.

Because of high inflation, the central bank has raised its benchmark interest rate four times since May by a total of 25 basis points, bringing it to 9 percent in August.

Analysts have said the central bank is likely to raise the rate to 9.5 percent by the end of 2008.

Boediono, the central bank governor, said Friday that inflation, triggered by the fuel price increases, had peaked in July.

"We expect to bring inflation down to between 6.5 percent and 7.5 percent in 2009," Boediono said.

Boediono also said the central bank would maintain the value of the rupiah against the dollar at an acceptable level and absorb excess liquidity to curb inflation.

The rupiah weakened 0.8 percent to 9,170 per dollar, Bloomberg reported. The currency declined 0.8 percent against the dollar this week.

High interest rates could dampen demand for bank lending and slow down economic activity.

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