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.