Govt bows to pressure, revises assumptions
The Jakarta Post, Jakarta
In response to a chorus of criticism over the assumptions in its 2006 draft budget, the government has proposed revisions to most of its basic assumptions, including the much-cited oil price forecast.
During a hearing with lawmakers on Monday, Minister of Finance Jusuf Anwar proposed that the Indonesian Crude Price (ICP) in the budget be revised to between US$50 and $55 per barrel, from an initial assumption of $40 per barrel.
With global oil prices showing no signs of abating, the proposal is seen as a response to earlier rebukes over the government's overly cautious approach in determining key aspects of the budget.
"Because of the less conducive development of the macroeconomics condition lately, especially the spike in oil prices and the U.S. dollar, the government is proposing new assumptions for the 2006 budget," Jusuf was quoted as saying by Dow Jones.
On Monday, New York's main oil contract, light sweet crude for delivery in October, climbed US$1.20 to $64.20 per barrel in electronic trading. In London, the price of Brent North Sea crude for November delivery rose $1.16 to $62.97 per barrel.
Other proposed revisions include the rupiah's exchange rate against the dollar.
The rupiah will likely average between 9,500 and 10,000 against the greenback next year, Jusuf told House of Representatives' Commission XI for financial affairs.
The government originally set the exchange rate at Rp 9,400 per U.S. dollar.
It also projected a slightly more cautious gross domestic product growth target of 6 percent to 6.2 percent in 2006, from the earlier assumption of 6.2 percent.
The inflation projection for next year was revised upward to between 7 percent and 8 percent from 7 percent, while the oil output target was maintained at 1.075 million barrels a day.
The government's 2006 budget assumptions, submitted to the House in mid-August, immediately met with a whirlwind of criticism from analysts and legislators.
Minister of Energy and Mineral Resources Purnomo Yusgiantoro said at the time that the ICP would stand at between $40 and $45 per barrel, with international oil prices expected to decline by up to $15 a barrel in 2006 due to a slowdown in the global economy and an easing of fears of political unrest in oil- producing countries.
The ICP reflects the prices of various types of oil produced in Indonesia and is used to determine local administrations' share of oil revenue.
To meet domestic fuel demand, Indonesia has to import some 400,000 barrels of crude and 300,000 barrels of refined fuel products per day. These imports use global market prices as their benchmarks.
Continuing pressure from global oil prices and concerns that the budget cannot afford the ballooning fuel subsidy sent the rupiah to a low of Rp 11,800 against the dollar last month.
After the central bank raised its benchmark rate to 10 percent from 8.75 percent, the rupiah has rebounded to about 10,000 per dollar.
The House and government will continue the deliberation of the 2006 state budget over the coming months.