Govt maintains targets despite oil hike

Fitri Wulandari, Jakarta

The government has decided to maintain the macroeconomic assumptions of the 2005 state budget draft as originally planned despite the surge in international oil prices.

"Basically, the (macroeconomic) assumptions and fiscal policy of the 2005 state budget draft remain unchanged from what has been discussed with the House of Representatives," Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti announced on Thursday.

He was speaking following a Cabinet meeting on the 2005 draft budget, which will be unveiled by President Megawati Soekarnoputri on Aug. 16 during her Independence Day speech.

The House of Representatives budget committee approved in June the government's macroeconomic targets for next year. The economic assumptions include a lower budget deficit of 0.8 percent of gross domestic product (compared to 1.2 percent assumed under the current budget), higher economic growth of 5.4 percent (compared to 4.8 percent forecast for this year), lower inflation of 5.6 percent and an oil price average of US$24 per barrel (compared to $22 per barrel).

But soaring international oil prices make these economic targets appear unrealistic.

The oil price recently surged to a record level of $45 per barrel due to strong demand and supply disruptions. The price may not have yet reached its peak, with many doubting the price will decrease to below $30 per barrel anytime soon.

A prolonged hike in oil price will not only push up inflation but will also slow down global economic growth, a condition that would harm the country's exports. The higher economic target for next year is based on, among other things, an assumption that exports will grow stronger.

The oil price assumption will also determine the amount of fuel subsidy the government allocates for next year.

All these developments will eventually also affect other economic targets set in the budget.

Meanwhile, Minister of Energy and Mineral Resources Purnomo Yusgiantoro said that crude oil prices may ease next year supported by improving fundamentals, such improved security in Iraq which would boost the country's oil output.

The economic assumptions will be used as the basis for drafting the 2005 state budget, which Dorodjatun said would be a "baseline budget" to be further deliberated by the next House members and administration.

The new members of the House resulting from the April election will be installed in early October, while a new government will assume office on Oct. 20.

The current administration is drafting the 2005 state budget considering the fact that both the new House members and administration will not have sufficient time to draft the budget from scratch within the two months before the start of the budget year in January.