Falling oil revenue to hurt RI budget

Falling oil revenue to hurt RI budget

SINGAPORE (Reuters): A strong rupiah, plunging energy prices and lower production have combined to hand Indonesian oil revenue a triple-whammy which would raise the country's budget deficit significantly, analysts said on Friday.

They said the beleaguered state might have to redo its national sums and seek out more loans on a bilateral basis.

"Any significant change in the rupiah rate would have a significant effect on the budget. They (the government) have to make new adjustments to the total budget because of the changing parameters," said Rizal Ramli, director at Econit, a Jakarta- based private think-tank.

"It is extremely debilitating to Indonesia, it is a sharp contrast to the previous year," said John Russel, managing director of Bangkok-based Petroleum Economics Ltd.

Projecting a budget deficit of 17 percent of Gross Domestic Product (GDP), GK Goh economist Song Seng Wun said the impact on Indonesian coffers would be strong because a third of state revenue comes from oil and gas sales.

Indonesia had forecast a budget deficit of 6 percent of GDP for the fiscal year to end March in its latest letter of intent to the International Monetary Fund.

"The sharper than expected fall in oil revenue will have a negative impact on overall revenue," Song said.

He said revenue from oil and gas sales has fallen to a monthly average of about US$600 million in the third quarter compared to $1 billion in fourth quarter 1997.

The outright loss in hard currencies was due to the sharp decline in international oil prices, with benchmark Indonesian Minas crude plunging to about $10.50 per barrel on Wednesday compared to the budget oil price of $13.00.

In addition to the price fall, Indonesia had also agreed to trim production by 100,000 barrels-per-day (bpd) as part of an agreement with the Organization of Petroleum Exporting Countries (OPEC) aimed at lifting sagging oil prices.

International Benchmark Brent crude oil price fell on Wednesday to trade at a 12-year low of $10.65 per barrel. Oil this year, on average at $13.66 for Brent, is priced lower than at any time since 1976.

Indonesia has yet to meet its obligations fully, producing in October 1.34 million bpd against the promised 1.28 million. But it is making efforts to reign in surplus.

The country is capable of producing 1.5 million bpd of crude.

The problem of falling revenues has more recently been compounded by the strengthening rupiah, which on Friday was trading at about 7,250 to one U.S. dollar compared to the assumed exchange rate of 10,600 in the budget.

Ramli said the resulting lower revenues in rupiah terms comes at a particularly bad time for the current government as they seek to boost the economy ahead of the elections next year.

"If the current government wants to be re-elected they must give the impression that the economy is doing well....The only option left is to get more loan money to finance the budget," he said.

Analysts said despite its financial woes Indonesia is unlikely to break production quotas agreed to with OPEC.

"If you look at Indonesia's track record, you find that they follow the rules very closely. I don't think they will over- produce," said Ramli.

Indonesia had last week ordered PT Caltex Pacific Indonesia to cut production by 60,000 bpd in order for it to meet the OPEC obligation.